If Wall Street forecasters are right, the rate rise expected Wednesday will be only the first in a series this year. So far, the Fed has seen little evidence its three rate increases in 1999 have dented the momentum of growth.

Central bankers have made it abundantly clear they fear inflationary pressures from high-velocity consumer demand that is taxing a shrinking supply of available U.S. workers.

"I think it's a strong bet that they will boost the rates a bit, probably not more than 25 basis points, at the meeting next week," former Fed Gov. John LaWare said, adding several more increases were likely to follow.

"I think the danger signs for inflation to flare up are beginning to be hard to ignore," he added.

Leading Wall Street firms polled by Reuters on Friday unanimously predicted the Federal Open Market Committee (FOMC) will nudge up the 5.5 percent federal funds rate on overnight bank lending to 5.75 percent at a two-day meeting starting on Tuesday. The decision is expected on Wednesday at about 2:15 p.m..

The poll of 30 primary dealers of U.S. government securities — those who deal directly with the New York Fed — showed 22 expect back-to-back rate hikes in February and March. The FOMC meets again on March 21.

Uneasiness in Markets

Despite some uneasiness in markets about the possibility of a more drastic rate rise in February, the FOMC has not taken a half-point step in five years and is unlikely to do so now.

Some economists also see the Fed raising its 5.0 percent discount rate on direct loans to banks to 5.25 percent.

"Demand is putting very significant pressures on an ever-decreasing available supply of unemployed labor," Fed Chairman Alan Greenspan said at his renomination hearing on Tuesday before the Senate Banking Committee.

That sums up the Fed's main preoccupation these days.

In a speech in New York earlier this month, Greenspan hinted at higher rates, saying a "huge" rise in stock prices was swelling consumer wealth and driving demand to a level where supply could not keep pace without creating inflation.

"In the end, balance is achieved through higher borrowing rates," said Greenspan, adding a recent rise in market interest rates was "supported by a central bank intent on defusing the imbalances that would undermine the expansion".

The U.S. expansion will become the longest on record when it enters its 107th month in February.

A number of Fed officials have conceded they see scant signs the rate hikes last year are taking a bite out of consumer demand. New growth and wage data released on Friday will do little to assuage their inflation worries.

Gross domestic product growth raced up 5.8 percent in the fourth quarter and the GDP implicit deflator, a price measure, rose 2.0 percent, almost double the rate in the third quarter.

The Employment Cost Index, a measure of wage inflation, rose 1.1 percent, fueled by higher benefit costs. All the numbers were stronger than economists had expected.

'Evidence of an Acceleration in Inflation'

"For the first time, we have tangible evidence of an acceleration in inflation in both wages and prices," said Allen Sinai, chief global economist at Primark Decision Economics.

There also appears to be a growing discomfort within the Fed about speculative excesses in stocks and, to a lesser extent, real estate. A speculative bubble, if it bursts suddenly, could wreak havoc on the economy, officials fear.

Greenspan said at his renomination hearing the Fed was concerned about a sharp rise in borrowing from brokers to buy stocks — or margin debt — at the end of last year.

The Fed allows investors to purchase stocks with a brokerage by putting up 50 percent of their value and some economists think such leveraging encourages speculation.

Philadelphia Fed President Edward Boehne said earlier this month he saw heavy speculation in technology stocks.

Richmond Fed President Alfred Broaddus, who votes on the FOMC this year, said recently he detected an increase in loans to fund speculative commercial and residential construction.

At its meeting, the Fed will be trying out a new way of communicating its "bias" that lets markets know if it is leaning toward a rate hike or a rate cut as its next move or is neutral.

The Fed will no longer state explicitly whether it has a bias toward tighter credit or easier credit. Instead it will offer an assessment of risks for heightened inflation pressure, economic weakness or say the risks are balanced.

Sinai said he expected a quarter-point rate hike would be accompanied by a statement saying the risk is for higher inflation — tantamount to a tightening bias.