The Federal Reserve is widely expected to raise interest rates by another quarter-point in its next meeting Tuesday, taking it from 2.75% from 3% in the eighth straight quarter-point rate increase. Fed officials see inflation as a greater threat to the nation than the slowdown in the economy.

In the past few weeks, however, the signs of such slowdown have become evident.

The Commerce Department said that economic growth was at a two-year low of 3.1% in the first quarter. Worrying is the slowdown in business capital spending that effectively drives the expansion.

Inflation reached a seven-year high of 2.2% at an annual rate in the first quarter, as shown by Fed’s favorite index of personal consumption, excluding food, energy and items.

Fed Chairman Alan Greenspan said that Fed looks at all risks setting interest rates and seeks to ward off the ones that are most dangerous. At present, in Fed’s perception, the risk of inflation is the greatest.

In the statement released in March 22 meeting, the Fed officials for the first time revealed their concerns about inflation, which prompted the markets to think that the next movement can be a half-point rather than a quarter-point increase. However, since then the weak economic growth has probably eliminated the option of a half-point increase.