The Federal Reserve's aggressive period of cutting interest rates to keep the United States from falling into a recession is over.

That point is in general agreement.

The trouble starts when one tries to figure out what period the Fed has now entered.

Could the US central bank keep rates unchanged for a considerable period? Yes, many analysts say, predicting that the Fed will leave rates alone until next spring.

However, other economists are still worried that the Fed could start ratcheting up rates much sooner than that, especially if this year's surge in oil prices does not soon abate.

The Fed didn't offer much of a road map in its latest policy statement issued Wednesday announcing that the central bank, for the first time since last August, had left the federal funds rate the interest banks charge each other unchanged at two per cent.

That decision followed a period from September through April in which the central bank, trying to deal with a severe credit crisis and housing slump, cut the funds rate at the most aggressive pace in more than two decades.

Less worried about recession

In their statement, Federal Reserve Chairman Ben Bernanke and his colleagues let it be known that they are now less worried about the economy slipping into a recession and more worried about inflation.

"Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased," the statement said.

That wording, however, was somewhat bland, even by the guarded standards of Fed-speak, especially given the pronouncements of Bernanke and other Fed policymakers, who openly worried in recent speeches about the inflation pressures that could be spawned by a weak dollar and surging energy prices.

It was those comments that caused financial markets to start pricing in rate hikes, possibly beginning as early as the Fed's August meeting. Now after Wednesday's announcement, the expectations of imminent rate hikes have subsided considerably.

Some analysts said that the earlier fears were overblown as financial markets demonstrated yet again that they have not learned the art of interpreting Bernanke after eighteen and a half years of parsing the often elliptical comments of his predecessor, Alan Greenspan.

"The problem is that people over-interpreted Greenspan because he never said very much," said David Wyss, chief economist at Standard & Poor's in New York.

"With Bernanke, he generally says what he means and when you over-interpret his comments, you miss the target."

Other economists, however, suggested that Bernanke was trying to use words to finesse a difficult period for Fed policymakers.

By talking tough about inflation, it caused interest rates set by financial markets to move up in value and also helped to stop a worrisome slide in the value of the dollar, a decline that has been blamed for driving up the price of oil and other globally traded commodities, a development that was increasing inflation pressures in the United States.

Tough talk

All of those outcomes were achieved by Bernanke merely talking tough without having to resort to actually raising interest rates at a time when the economy is still very fragile.

David Jones, an economist at DMJ Advisors, said the the Fed is trying to avoid a replay of the wage-price spiral of the 1970s when successive oil shocks triggered rising inflation and higher wage demands from workers. That set off a vicious spiral that was only brought under control by painful interest rate increases that triggered a steep recession in 1981-82.

"The Fed reaffirmed in its statement that the rate cuts are over and that the next change will be up, but I don't see any special urgency about how soon that rate increase will take place," Jones said.

Not looking for rate hike

While some investors are still thinking that the first rate increase could come at the September or October meetings, Jones said he did not look for a rate hike until the last meeting of the year in December because the central bank will want to avoid changing rates in the midst of a presidential election campaign.

Other economists said they believe rate changes will occur even later than December, in part because of their belief that the faint signs of an economic rebound evident now are coming from the US$168 billion economic stimulus programme with its rebate cheques to 130 million households.

Economy could swoon

Once the impact of those cheques wears off later this year, the economy could again swoon, sending unemployment, which took a big leap to 5.5 per cent in May, rising even higher.

Mark Zandi, chief economist at Moody's Economy.com, said he believed the Fed will not feel the need to actually begin raising interest rates until next March. "I think it is going to take that long for the economy to find its footing," he said.

Of course, that forecast is based on a belief that oil prices, which have soared this year to above $130 per barrel, will soon level off and maybe even start declining a bit. If they don't, then Zandi and other economists said the Fed may feel forced to begin hiking rates to show resolve against a rising inflation threat.