WASHINGTON – With signs the economy is strengthening, Federal Reserve policymakers are increasingly focused on when and how they will start boosting rates once the recovery is firmly entrenched.

Higher rates for millions of American borrowers are still months away at best, most economists predict.

Yet Fed Chairman Ben Bernanke and his colleagues, who opened a two-day meeting Tuesday afternoon, are likely to discuss how best to use the various tools at their disposal to tighten credit and mop up the unprecedented amount of money that was pumped out to fight the economic and financial crises.

The Fed meets as the economy flashes growing signs of improvement.

Employers are creating jobs. Americans’ confidence is rising and they are spending more. Manufacturers are boosting production.

Still, there are continuing strains: high unemployment at 9.7 percent, loans are hard for people and businesses to obtain, and the housing and commercial real-estate markets are fragile.

“The Fed is going to sound more upbeat about the economy. Its message: The recovery is intact, but it is not so strong yet that it feels the need to signal tighter policy,” said Mike Feroli, economist at JP Morgan Chase Bank.

The Fed won’t be able to wait for all the economy’s current problems to disappear before it switches course. The timing and execution of a Fed policy shift is a high-stakes game.

The Fed needs to hold rates at record lows long enough to make sure the recovery is lasting, especially once the bracing effects of the government’s massive fiscal stimulus fades later this year.

On the other hand, the Fed must be nimble to start tightening credit to prevent inflation from becoming a problem or sowing the seeds of new speculative excesses.

For now, Bernanke and other Fed officials have repeatedly signaled that they will need to hold rates at record lows for some time to come to nurture the fledgling recovery.


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