Despite the lack of unanimity in the U.S. Federal Reserve Board’s decision to raise rates today, economists don’t see the Fed pausing in future rate hikes.

As expected, the Fed raised interest rates by 25 basis points to 3.75%.

National Bank Financial suggests that more rate increases should be expected. “Even though the FOMC recognizes the disruption to economic activity caused by Hurricane Katrina and its impact on energy prices, the Committee is of the opinion that this does not represent a long lasting threat to U.S. economic performance,” NBF says. “We hope the Fed is right, but worry it is still too early to be so convinced that consumers will not be more affected by the recent events than the central bank seems to be assuming.”

Nevertheless, NBF finds that, “Today’s statement does not signal that the Fed is about to move to the sidelines anytime soon. If anything, strong economic momentum prior to Katrina coupled with increased energy price volatility in its wake appears to make the Fed a little less at ease with inflation expectations which it now sees as “contained” rather than “well contained”. By keeping the key sentence that “policy accommodation can be removed at a measured pace” the FOMC is signalling its intention to keep on raising the Fed funds for the foreseeable future.” NBF predicts this means that the overnight rate is likely to end the year at 4.25% (unless economic conditions take a turn for the worse).

Bank of Montreal notes that, “One tentative sign that beyond next meeting, the Fed could move onto the sidelines was the fact that one member of the FOMC dissented. Governor Olson indicated a preference to leave fed funds unchanged at this meeting. His future comments will be monitored to determine whether the dissent was due to the uncertainty about the near-term outlook in the wake of Hurricane Katrina or whether he is of the view that interest rates are nearing so-called ‘equilibrium levels’.”

TD Bank suggests that financial markets will have to wait until the minutes are released in three week’s time to see if Olson’s view was based on the hurricane impact or whether the Governor feels that rates have reached a sufficiently high level in relation to economic growth and inflation prospects.

“Dissension is not unheard of at the Greenspan Fed, but it is relatively unusual. The last time the vote failed to be unanimous was in June 2003 when the Fed eased (dissenter voted for a larger rate cut). Dissention occurred once in 2002 and three times in 2001. The last time there was dissent on a tightening move (the dissenter voted to stay unchanged) was in June and August of 1999,” reports BMO Nesbitt Burns. It suggests that Olson’s dissent is based on near-term Katrina-related economic concerns rather than a different view on monetary neutrality.

BMO Nesbitt is looking for the Fed to hike rates on November 1 and possibly again at the December 13th or, more likely, the January 31st meeting, which will be the last one for Chairman Alan Greenspan. “The markets seem to agree that the Fed is not finished,” it points out. “Immediately following the devastation of Hurricane Katrina, the fed funds futures market had fully priced out a November 1 rate hike. The odds climbed to 56% at yesterday’s close. In the wake of today’s Fed decision and statement, the odds moved up to roughly 76%.”

And, its colleagues over at BMO are currently forecasting that rates will be hiked in November by 25 basis points after which the Fed moves onto the sidelines to assess the impact of both the tightening to date and high oil prices. “On indications mid-2006 that the economy has weathered this restraint, tightening resumes with fed funds eventually rising to a near-term peak of 4.50% by September 2006,” it predicts.

BMO Nesbitt also says that today’s Fed action opens the way for another Bank of Canada rate hike on October 18th. “Despite the recent surge in the Canadian dollar, the BOC will likely want to reduce some of the monetary accommodation in Canada as headline inflation rises, albeit temporarily. Overnight rates in Canada are a mere 2.75%, a full 100 basis points below the fed funds rate.”