WASHINGTON -- Economists and financial analysts generally were not expecting the Federal Reserve Board to raise interest rates at the Federal Open Market Committee meeting that began on Tuesday.

Wary of trying to prop up the dollar and becoming hostage to the volatile international currency markets, the U.S. central bank was expected to decide policy based on the domestic economic outlook.

On that score, analysts said, it was not clear that the Fed has enough reason to raise rates.

Some analysts expected the FOMC instead to give Chairman Alan Greenspan the power to tighten credit on his own in the future -- depending on how the economy develops.

"The U.S. economy is now on about the right trajectory, [and] it's no longer overheating," said Robert Hormats, vice chairman of Goldman Sachs International.

"If the Fed were to raise rates now, it could tip the economy toward a trajectory of much slower growth - much slower growth than the Fed wants and much slower growth than the [Clinton] administration wants."

But that hasn't stopped the currency markets from demanding higher U.S. interest rates as the price for propping up the dollar.

Speculation over Rates

Higher rates would help the U.S. currency by making it more lucrative for investors to hold.

The Fed has raised interest rates in the past to defend the dollar, though only rarely, in response to a full-blown currency crisis. The dollar's tumble this time may not fit the bill, analysts said.

Much of the dollar's decline has occurred against the Japanese yen and, to a lesser extent, the German mark. Against many othe currencies, including the Canadian dollar and Mexican peso, the dollar has held up well or even risen.

That's important because Canada and Mexico are two of America's largest trading partners. If the dollar stays strong against these currencies, prices of their imports stay down, helping to hold U.S. inflation in check.

Also, the central bank may be wary about raising rates again out of fear of further congressional attacks before the midterm elections in November, analysts said.

Chorus of Criticism

The Fed already raised rates four times this year, to a chorus of criticism from Congress.

As a result, analysts said, the dollar was likely to be only one of a host of factors that the Fed looked at in its two-day interest rate strategy session.

And those other factors seem to argue against an immediate rate rise, economists at UBS Securities Inc. in New York said. Commodity and gold prices, frequently important harbingers of inflation, are little changed from levels on May 17, when the Fed last raised interest rates, though they have been volatile.

Signs of a Slowing Economy

Economic growth has shown scattered signs of slowing over the past month, though the evidence is not yet clear and the economy still has considerable momentum, Fed officials said.

The next important reading on the economy's health - unemployment figures for June - is not expected until Friday, two days after the Fed meeting.

Therefore, some analysts expect Fed policymakers to refrain from tightening credit and instead opt to give Mr. Greenspan leeway to raise rates, should he so wish, based on changes in the outlook for the domestic economy.

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