The Federal Reserve (search) concluded at its last meeting on Feb. 1-2 that interest rates likely remained too low to keep inflation stable and held open the possibility of altering the pace of future increases, minutes of the meeting issued Wednesday showed.

On balance, the central bank's policy-setting Federal Open Market Committee (search) felt its policy of pushing rates up would keep inflation in check but left no doubt it intended to keep on raising them.

"The real federal funds rate was generally seen as remaining below levels that might reasonably be associated with maintaining a sts, leaving room for the Fed to pause or to speed up rate rises as it saw fit.

"The pace of policy moves at upcoming meetings ... would depend on incoming data," the Fed said.

On balance and despite some signs of more price pressure and a greater ability among companies to pass on costs, the Fed appeared confident it will able to keep inflation in check.

"Despite some pickup in costs, participants thought that the rate of core inflation likely would remain low and stable, assuming further removal of policy accommodation," it said.

Separately. the president of the Atlanta Federal Reserve Bank, Jack Guynn (search), told a Rotary Club meeting on Wednesday that interest rates remain "accommodative" and should rise.

"In my opinion, the present fed funds rate is still accommodative, and with an economic expansion that now seems to be well established, I believe the FOMC still has a ways to go in recalibrating monetary policy," Guynn said.

Analysts said the Fed minutes indicate a level of concern among Fed policymakers about rising prices but not enough alarm to prompt bigger rate rises soon.

"They pretty much confirm the market outlook that rates are likely to rise at a measured pace," said Omer Esiner, a market analyst for Ruesch International in Washington. "They have also left the door open for a change of that pace if the environment should warrant."

The term "measured" has generally come to be associated with the quarter percentage point moves that the Fed initiated last June after bringing the fed funds rate down to a 46-year low of 1 percent.

The Fed is on track to hike the fed funds rate to a neutral level widely seen as somewhere between 3 and 5 percent.

In the minutes, the Fed cited several factors that could cause "an upward skew in the distribution of inflation outcomes" like an "appreciable" further fall in the dollar's value or lower rates of productivity, or output per worker:

"Already some participants were hearing anecdotal reports from firms of an increased ability to pass cost increases through to product prices, perhaps because of increasing confidence in the outlook for the economic expansion."

One unidentified FOMC participant thought that national economic output might be running "at or close to potential" already, which would imply increased inflation risk.

"It seems pretty clear that all the concern right now is on the upside risk to inflation, from the dollar and from anecdotal reports of higher price pressures," said economist John Shin of Lehman Brothers in New York.

The Fed cited big U.S. trade imbalances as a contributor to economic uncertainty and was unsure about the Bush administration's commitment to rein in record budget deficits.

"The extent to which the federal budget deficit would decline over coming years was an open question," the minutes said. With U.S. economic growth outstripping that of its major trade partners, it was also doubtful that trade deficits can be reduced, they added.