WASHINGTON (AP) – The Federal Reserve is expected to nudge interest rates up for a fourth time this year today, acting on the belief that the economy has finally emerged from an extended “soft patch.”

And the November rate increase is likely to be followed by another quarter-point move at the Fed’s final meeting of the year on Dec. 14 with more rate hikes to come in 2005, analysts say.

That represents a change in thinking from just a week ago, when many were predicting that the Fed would raise rates this month but then would pause to assess the effect on the economy of its credit-tightening campaign.

What changed the forecast was the far better-than-expected employment report for October that showed the nation’s businesses adding 337,000 workers last month, the biggest one-month gain in seven months and more than double what had been forecast.

The big surge in hiring was taken as the strongest signal yet that the economy is starting to regain steam after slowing dramatically during the summer.

largely because of surging energy prices.

“We are certainly out of the soft patch, and I think the economy is getting on firmer ground,” said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis.

The Fed started raising interest rates last June with the federal funds rate, the interest that banks charge on overnight loans, at a 46-year low of 1 percent. The three quarter-point rate hikes in June, August and September have pushed the funds rate to 1.75 percent.

Banks’ prime lending rate, the benchmark for millions of consumer and business loans, has risen from 4 percent in June, the lowest level since 1958, to 4.75 percent currently.

A move on Wednesday would put the prime rate at 5 percent, still well below the 9.5 percent level for the prime rate in early 2001 shortly before the Fed began an aggressive easing campaign to deal with the shocks of a bursting stock market bubble and the 2001 recession.

The federal funds rate stood at 6.5 percent before the Fed’s first rate cut in January of 2001, but analysts doubt that the Fed is aiming for rates that high in its current credit tightening campaign.

Rather, the central bank is trying simply to get back to a neutral level for the funds rate, a level where the Fed’s policies are not acting to stimulate economic growth or to restrain growth. While the Fed has not said where the neutral level is for the funds rate, many economists believe it is around 4 percent.

That would take nine more quarter-point moves to get from 1.75 percent to 4 percent on the funds rate. After the final two meetings this year, that would translate into seven more quarter-point moves next year.

The Fed panel that sets interest rates meets only eight times a year.

Many analysts believe that timetable, virtually to the end of 2005, is exactly what Federal Reserve Chairman Alan Greenspan has in mind, given that his long tenure at the Fed ends in early 2006.

“I think they are going to keep raising rates for an extended period of time,” said David Wyss, chief economist at Standard & Poor’s in New York. “I think Chairman Greenspan would really like to get back to neutral before he leaves.”

But David Jones, author of several books on the Greenspan Fed, did not rule out a pause at some point in the tightening cycle, saying the Fed will be very focused on how the economy is performing.

“There will be a lot of questions (among Fed policy-makers) about how much damage higher oil prices are doing to the economy and whether they are acting as a brake on consumer and business spending,” Jones said.

The major factor that is allowing the Fed to take what it has been calling a “measured” pace in raising interest rates is the absence of significant inflationary pressures. So far little evidence has appeared that the steep spike in energy prices this year is showing up in higher prices outside of energy or in higher wage demands in the labor market.

Where energy has had an impact has been in economic growth. Skyrocketing energy prices cut sharply into consumer activity in the spring, when the overall economy as measured by the gross domestic product went from a sizzling 4.5 percent January-March growth rate to a 3.3 percent GDP rate in the second quarter. The GDP rebounded slightly to 3.7 percent in the July-September quarter.

Many analysts are looking for the year to finish strong with fourth-quarter growth above 4 percent. Such a comeback would be helped if oil prices continue to retreat from the $55 per barrel high hit in October.

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On the Net:

Federal Reserve rate-setting committee: http://www.federalreserve.gov/fomc/

AP-ES-11-09-04 1522EST