NO INTEREST RATE MOVEMENT EXPECTED.

Byline: Richard W. Stevenson The New York Times

The Federal Reserve probably will not raise interest rates when its policy-making body meets next week, economists said Thursday, but that call will be an unusually difficult and close one on both economic and political grounds.

The economy appears to be growing at an unexpectedly robust clip of around 4 percent for the second quarter, and with unemployment at a low 5.6 percent, the likelihood of inflation starting to take root would normally be considered high.

Under its chairman, Alan Greenspan, the Fed over recent years has taken to heading off inflation in advance by attacking it with higher interest rates long before it has a chance to spread through the economy.

But there are only scattered and inconsistent early warning signs of inflation, mostly reports that tight labor markets in some areas are starting to push up wages.

Indeed, many economists believe the economy is about to slow substantially, and some even think the Fed will move to reduce rates by the end of the year.

A number of analysts, however, contend that the Fed is likely to raise rates slightly sometime later this year.

To a large extent, economists said, the financial markets have already done much of the Fed's inflation-fighting work for it by sending long-term interest rates sharply upward earlier this year.

The higher rates are expected to slow key sectors of the economy like housing, and should help cut the growth rate in the the second half of the year, easing whatever inflationary pressures might be building.

``While the economy has been somewhat stronger than expected so far this year, the backup in interest rates that's taken place is going to end up slowing the economy no matter what the Fed does,'' said Bruce Steinberg, an economist at Merrill Lynch & Co.