The Federal Reserve has tripled a key short-term interest rate in less than a year, and the series of increases probably isn't over yet.

The Fed's Open Market Committee raised the target federal funds rate by a quarter point to 3 percent. That's the rate that banks charge one another for overnight loans to cover reserves. More important for consumers, the prime rate will rise by a quarter point to 6 percent. People with variable-rate credit cards and home equity credit lines will notice the effect of the Fed's rate hike soon, within one to three billing cycles.

A year ago, the federal funds rate stood at 1 percent, the lowest it had been since 1958. The Fed had set it that low in response to a recession and the terrorist attacks of Sept. 11. But the basement-level interest rate invited inflation, and the Fed embarked on a series of increases on June 30 to keep prices in check. The rate-setting committee has hiked rates eight meetings in a row, by a quarter point each time.

At some point, the Fed will have to stop raising rates, or at least pause for a meeting or two. Investors have combed through speeches by Fed officials and have parsed the central bank's statements for clues as to when this pause will happen. This latest statement is due for especial scrutiny.

"Recent data suggest that the solid pace of spending growth has slowed somewhat, partly in response to the earlier increases in energy prices," the Fed explained in an after-meeting statement, adding that the job market is improving gradually.

"With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured," the central bank added.

The Fed's next meeting is June 29 and 30, and until then there will be yet more debate and scrutiny over this statement and any speeches.

This rate increase was universally expected because Fed officials had telegraphed it well in speeches and in quotes to reporters such as Greg Ip of the Wall Street Journal. The most important clue had been the retention of the phrase that said low rates "can be removed at a pace that is likely to be measured." Most people think that's the Fed's way of saying that it intends to keep raising rates a quarter point at a time.

The removal of the word "measured" will be the Fed's signal that it plans to halt the quarter-point increases, either by keeping rates steady for a meeting or two, or by raising rates by a larger chunk, such as half a percentage point.

The consensus among investors and economists is that the Fed wants to end up with a federal funds rate between 3.75 percent and 4.25 percent, or possibly even a bit higher.

"I think they have some room to work with here," says Mat Johnson, director of strategy and economic research for ThinkEquity Partners. "I do believe they should be raising rates. I'm one of the folks who didn't want them to lower rates as aggressively as they did."

Such low rates encourage risky business decisions, Johnson says. He believes the Fed will raise the federal funds rate to 4 percent, which would make the prime rate 7 percent. Given what he knows now, Johnson believes rates at that level would keep prices from rising too quickly while encouraging businesses to invest prudently in new plants and equipment.

What about housing? Newspapers are full of speculation of a housing bubble, in which low interest rates artificially inflate home prices. Mortgage rates have been low for years, but it's hard to attribute them to the Fed. In the last year, the federal funds rate has risen 2 percentage points while the average rate on a 30-year fixed mortgage has dropped about one-third of a percentage point. A similar drop has happened to yields on 10-year U.S. Treasury notes. Fed Chairman Alan Greenspan scratched his bald head a few weeks ago and pronounced this state of affairs a conundrum.

"I think what you're seeing, in effect, is the Fed starting to realize, and coming to grips with the fact, that they can continue raising interest rates and won't have as much of an effect on the 10-year as they once had," says Mark Kajita, vice president and senior portfolio manager for Baker Boyer National Bank in Walla Walla, Wash.

Kajita notes that corporations have been extraordinarily profitable in the last couple of years. Instead of spending the money on employee raises or new buildings and equipment, they have been hoarding cash. "That really doesn't make them want to go out and borrow any money," he says. The reduced demand for borrowed money keeps yields low on corporate bonds, Treasury notes and mortgage-backed securities. And that keeps mortgage rates low and home prices high.

The Fed controls the federal funds rate indirectly by selling and buying securities to add and withdraw cash from the banking system. The prime rate moves up and down with the federal funds rate and is 3 percentage points higher.

Rates for auto loans, mortgages and longer-term home equity loans don't respond directly to the Fed's rate moves. Instead, they rise and fall with investors' expectations of economic growth and inflation.

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