Updated from 2:29 p.m. EST

The Federal Reserve raised interest rates for the fifth time this year Tuesday, and gave no indication that its tightening campaign is coming to an end.

In a widely anticipated move, the central bank increased its target fed funds rate by 25 basis points to 2.25%, and repeated its view that policy accommodation can be removed in a "measured" way.

"Output appears to be growing at a moderate pace despite the earlier rise in energy prices, and labor market conditions continue to improve gradually," the bank said in a statement.

At its last meeting in November, the Fed said output "appears to be growing at a moderate pace despite the rise in energy prices." It also noted that the job market had "improved."

Oil prices have fallen precipitously since hitting a high of more than $55 a barrel in late October, helping to remove one of the drags on consumer spending. Nymex crude oil futures were last sitting at $41.82 a barrel. Still, the recent decline has been offset somewhat by a sluggish labor market. The government reported that just 112,000 new jobs were created last month.

"The language of the statement was almost identical to the last one," said John Derrick, who manages $600 million in fixed-income products at U.S. Global Investors. "It was very uneventful."

The odds for a sixth rate hike in February barely budged in the wake of the decision and currently stand at 96%. But Asha Bangalore, an economist at Northern Trust, said those odds could be reduced over the next couple of months, if the economy starts to weaken as she expects.

"We've seen five monthly declines in the Conference Board's leading economic indicators, a deceleration in durable goods orders, a sharp deceleration in industrial production on a quarterly basis and slowdown in factory output," she said.

The Fed has raised rates five times this year in an effort to remove some of the stimulus put in place after the recession and terrorist attacks three years ago. In recent weeks, some Fed officials have also become concerned about inflation, according to The Wall Street Journal.

The producer price index rose 0.5% last month, above economists' expectations. But the core rate, which excludes food and energy, rose just 0.2%, down from a 0.3% increase the month before. Meanwhile, companies like Wal-Mart ( WMT) have found it hard to pass on higher costs to consumers, suggesting that prices at the retail level are likely to remain in check.

In its statement Tuesday, the Fed reiterated that "inflation and longer-term inflation expectations remain well contained."

"The committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters to be roughly equal," the bank said. "With underlying inflation expected to be relatively low, the committee believes that policy accommodation can be removed at a pace that is likely to be measured."

"Nonetheless, the committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability."

Once again, the Fed did not mention the falling dollar in its communique. In a speech last month, Fed Chairman Alan Greenspan said that if foreign demand for U.S. assets wanes amid a burgeoning trade deficit, interest rates would have to rise to attract foreign capital, or the country would be forced to import less. The trade deficit widened to a record $55.5 billion in October.

"The Fed remains in on its pursuit of a comfortably positive real level of interest rates so as to replenish its armory in the event of an economic shock, and to contain any inflationary pressures emerging from the onset of oil and a weak dollar," said Ashraf Laidi, chief currency analyst at M.G. Financial.

"But we remain apprehensive regarding the prospects for further rate hikes mainly due to accumulation of downside risks such as a run-up in rising long yields resulting from deterioration in the twin deficits, and a potential revaluation from China."

Over the past two decades, the Fed has hiked rates in December just twice, in 1986 and 1988. It even skipped the December meeting during the tightening campaigns of 1994 and 1999.

Even after raising rates Tuesday, the Fed said monetary policy remains accommodative "and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity."

Stocks rose after the decision was announced, with the Dow up 49 points at 10,687 and the Nasdaq up 13 points at 2161. Long-term Treasuries also rallied after the Fed downplayed the threat of inflation, with the yield on the 10-year Treasury falling to 4.13%.

Since the Fed began raising rates in June, the yield curve has been flattening out, with long-term rates falling and short-term rates increasing. The yield on the two-year note rose to 2.97% Tuesday.

"Some say it is a very bearish sign," said Tony Crescenzi, bond strategist at Miller Tabak & Co., and contributor to RealMoney.com. "It is important to note that while the yield curve is flatter, it is not flat. Nevertheless, should there be an acceleration in the flattening trend, it would signal that the Fed has moved too much on rates and that the economy is set to slow more than most expect."

In addition to raising the fed funds rate, the central bank also raised the discount rate by a quarter point to 3.25% and said it would expedite the release of its minutes from now on. The minutes of regularly scheduled meetings will be released three weeks after the date of the policy decision, instead of six. The first set of expedited minutes will be released at 2 p.m. on Jan. 4, 2005.

"This will make the minutes more of a market event, as they will no longer be pre-empted by the results of the following meeting," said Goldman Sachs economist Bill Dudley. "Today's rate hike and the minimal changes in the language of the statement contained absolutely no surprises."