In their last regularly scheduled session for 2004, Fed Chairman Alan Greenspan and his Federal Open Market Committee colleagues — the group that sets interest rate policy in the United States — increased the target for the federal funds rate to 2.25 percent from 2 percent.

The funds rate — the interest banks charge each other on overnight loans — is the Fed's main tool for influencing economic activity.

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.

The action means the funds rate has more than doubled from the 46-year low of 1 percent where it stood before the Fed embarked on its current string of rate increases in June.

As a result, Wells Fargo said it was increasing its prime lending rate to 5.25 percent from 5 percent. Other banks were expected to follow suit. The prime lending rate, the benchmark for many short-term consumer and business loans, moves in step with the funds rate.

The Fed's current rate-raising campaign began in June, when the central bank ordered its first rate increase in four years. Since then, it has boosted rates five times, with each move by a modest, one-quarter point.

Fed policy-makers today 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."

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

"They are not done," said Stuart Hoffman, chief economist at PNC Financial Services Group. "The Fed is steady as you go. It is doing exactly as expected and indicated more, measured, quarter-point rate hikes will come." Hoffman predicted another quarter-point boost at the February meeting.

On Wall Street, the Dow Jones industrials were up more than 50 points in trading after the Fed's afternoon announcement.

Today's vote was unanimous.

Extra-low rates had been used as a tonic to help the economy recover from the 2001 recession.