Federal Reserve officials kept up their tough talk on inflation on Monday, bolstering expectations in financial markets that another rate increase is on the way at the Fed's policy meeting later this month.

Views have been hardening that the Federal Open Market Committee will opt for a 17th straight rate rise at its June 28-29 gathering, pushing the federal funds rate to 5.25 percent in a bid to cap a recent worrisome climb in U.S. prices.

The core CPI (consumer price index excluding food and energy) has increased at an annualized rate of more than 3 percent during the past three months. This inflation picture, if sustained, exceeds my comfort level, Cleveland Fed President Sandra Pianalto, a voting member of the FOMC this year, said in a speech in Orlando, Florida.

Still, she said if the economy moderates as forecast, a federal funds rate of 5 percent is near a point that will gradually ease inflation.

Fed Governor Susan Bies, speaking in Washington, offered a similar prognosis, saying U.S. rates were generally in the range they need to be, although she was still not sure where they would peak.

If you asked me today, 'Sue, where are you going to stop?' I couldn't tell you, because we're in the range that we need to be, I think, Bies said in answer to a question after speaking on banking issues at the Financial Women's Association.

After two years of rate increases, the U.S. economy is at a turning point that leaves the central bank extremely dependent on incoming data and whether it accords with forecasts for slower growth, she said.

Arguably, the biggest piece of economic news between now and the next FOMC meeting will be the May CPI report, due on Wednesday.

Wall Street analysts forecast a rise of 0.2 percent in core CPI after two consecutive monthly gains of 0.3 percent that have unnerved financial markets, helped trigger a drop in the stock market and put the Fed in full jawboning mode.

Last year I began to anticipate that we might confront some disappointing inflation data in the first half of this year, although I was not expecting quite as much inflation as we have seen, Pianalto said.

Still, Bies and Pianalto both emphasized the lag between Fed policy actions -- the current string of rate increases dates back to June 2004 -- and their impact on the economy.

There is a lot in train regarding previous rate moves, Bies said. The trouble with monetary policy is it works with a long and variable lag of anywhere from nine to 18 months.

High energy prices continue to trouble the central bank because of the potential they could feed through layers of the economy to the consumer level.

It's been limited so far but it's getting more, Bies said of inflation pressure stemming from gasoline.

Richard Fisher, president of the Dallas Fed and a non-voter on the FOMC this year, highlighted energy prices in comments to reporters after a speech at the University of Texas in Austin that largely steered clear of policy.

Everyone is concerned about the possibility of the passing through of gas and oil energy prices, Fisher said, noting some angst on the issue at the Fed.

Crude oil futures have traded above $70 a barrel for much of the past two months. Analysts fear that the longer prices stay high, the more likely they will push up core prices.

A drumbeat of anti-inflation talk from Fed officials this month has heightened investor expectations for another rate rise. Chances of a June move, reflected in prices for short-term rate futures, rose as high as 88 percent on Monday from 82 percent on Friday.

Markets conclude that June's rate increase will probably be the last for now. Chances that the fed funds rate will rise to 5.5 percent are currently about 33 percent, based on futures contracts.

Still, the central bank is believed to be eager to maintain its inflation-fighting credibility under the new leadership of Chairman Ben Bernanke -- a desire some Fed watchers think may result in a higher fed funds peak.

Pianalto made plain that while she believed expectations for future inflation were still under control, it was up to the Fed to ensure they stay that way.

Measures of long-term inflation expectations have been mixed lately, but, on the whole, I regard them as remaining contained. The FOMC's challenge is to make sure that they stay contained, she said.

Later on Monday, Bernanke spoke to business students about bank supervision, steering clear of the U.S. economy. During subsequent questions from the audience, he repeated that it was in China's interests to move toward currency flexibility.

China itself would be well served by moving toward a more flexible, market-determined exchange rate system, he said.

China is a very large economy and it will need increasingly an independent monetary policy. And with a fixed exchange rate, the latitude for monetary policy is greatly constrained.