In a widely expected move, the Federal Reserve (search) Tuesday raised its target for the federal funds rate by a quarter percentage point to 2.25 percent from 2 percent, the fifth increase this year.

The unanimous and widely expected decision by Fed Chairman Alan Greenspan (search) and the rate-setting Federal Open Market Committee (search) is part of a credit-tightening campaign to bring rates back up to more normal levels.

The economy ''appears to be growing at a moderate pace despite the earlier rise in energy prices and labor market conditions continue to improve gradually,'' the Fed said in a brief statement after the meeting.

A few analysts had wondered whether the Fed would warn about a heightened risk of upward price pressures, but the central bank said risks to the economy remained balanced between inflation and renewed weakness.

Fed policy-makers on Tuesday stuck to their view that future rate increases would be gradual. The Fed said that rates can be raised ''at a pace that is likely to be measured.''

A few analysts had wondered whether the Fed would warn about a heightened risk of upward price pressures, but the central bank said risks to the economy remained balanced between inflation and renewed weakness.

Policy-makers also said they thought inflation and longer-term inflation expectations were in check.

The dollar dipped in the wake of the decision while stocks edged higher and Treasury bonds pared losses.

The federal funds rate (search), the interest that banks charge each other on overnight loans, is the Fed's primary tool for influencing the economy.

The U.S. economy grew at a respectable 3.7 percent annual rate in the third quarter and job gains have averaged 178,000 over the last three months — not spectacular but fast enough, analysts say, to whittle away at the unemployment rate.

Economists say the Fed may grow warier on inflation as the jobless rate, which dipped last month to 5.4 percent, falls.

"It's not a robust expansion, but on the other hand it is an expansion and we are growing fast enough to see improvements in the job market," said David Berson, chief economist at mortgage finance giant Fannie Mae.

A series of 13 rate reductions that began in January 2001 and ended in June 2003 left the funds rate at the 1 percent level, a 46-year low. During that period, the Fed battled to help an economy staggered by a series of blows from a plunging stock market and the 2001 recession to terrorist attacks and two wars.

The Fed's current rate-raising campaign began in June with a quarter-point boost, marking the first rate increase in four years. The Fed bumped up rates again by a quarter-point in August, September and November, and then once more on Tuesday.

As a result of the Fed's decision to push up the funds rate, commercial banks were expected to increase their prime lending rate to 5.25 percent, from 5 percent. The prime lending rate, the benchmark for many short-term consumer and business loans, moves in lockstep with the funds rate.

To further improve communications with Wall Street and Main Street, the Fed decided to speed up the release of minutes after each of its regularly scheduled eight meetings a year. It said it would release the minutes three weeks after the meetings, versus the current six to eight week lag.

There are eight scheduled Fed meetings in 2005; the first is Feb. 1-2.

Reuters and The Associated Press contributed to this report.