NEW YORK (CNN/Money) -
Almost nobody was shocked by the Fed's modest quarter-percentage-point interest-rate hike Wednesday afternoon, and most observers believe the Fed will be just as timid with policy the rest of the year.
But beneath the Fed's mild-mannered exterior could beat the heart of a much more aggressive central bank, one that would jack rates up immediately if it had its druthers.
Such an approach was contemplated earlier this year by Fed Governor Ben Bernanke, who described it as the "cold turkey" approach to monetary policy.
"Under a cold turkey strategy, at each policy meeting the Federal Open Market Committee (FOMC) would make its best guess about where it ultimately wants the funds rate to be and would move to that rate in a single step," Bernanke said in a speech in late May.
Bernanke ultimately decided that the Fed's current "measured" approach -- the market expects a handful of quarter-point hikes this year, and some more next year -- was the best for the current situation. After all, a drastic hike in short-term rates probably would cause a panic in financial markets and send other rates skyrocketing, snuffing out the economic recovery.
The first quarter-point hike came on Wednesday, along with a promise of more to come.
But some analysts think some of Bernanke's compadres at the Fed wish that the fed funds rate, the overnight lending rate that influences other rates across the economy, was already much, much higher than its current 1 percent, the lowest in more than 40 years.
"I think there are some members who would prefer that the funds rate be at 3 percent, but I suspect there is a little concern about moving too fast and upsetting the household sector," said Paul Kasriel, director of economic research at Northern Trust.
Kasriel and some other analysts believe that the short-term pain of raising rates aggressively, which could include a recession, would be worthwhile, if it could prevent the onset of 1970s-style mega-inflation.
"Those who have lived through the 1970s remember the tremendous toll that accelerating inflation took on the economy and vowed to never make that mistake again," Kasriel said.
"Well, one could argue that they're in the early process of making that mistake again. Those with some memory would probably rather have the funds rate at 3 percent than 1 percent."
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 CNNfn's Rhonda Schaffler speaks with former Fed Governor Susan Phillips about the central bank's move.
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And the Fed might also prefer to have a little extra ammunition to respond if there's another terror attack -- as it did following the Sept. 11 attacks -- or if the economy ends up being in much worse shape than it looks right now.
"The Fed's main problem at present is that, with its funds rate at just 1 percent, there's little or no scope for confidence-building rate cuts in the event of a contractionary shock to the system," said Rory Robertson, an interest rate strategist at Macquarie Bank in Sydney.
On the other hand, the Fed has other tools at its disposal to deal with such a catastrophe, even with the fed funds rate extremely low. It could simply flood the system with money, for example, something that would have a more immediate impact than cutting the fed funds rate.
"I don't think that you can set policy according to possible contingencies that may occur, but about which you have no information," said Carnegie Mellon economics professor and Fed historian Allan Meltzer, a visiting scholar at the American Enterprise Institute, a conservative think tank.
Still, a fed funds rate this low -- when compared with inflation, it's actually negative -- is like rocket fuel to the economy, and almost everybody agrees it will have to rise to a more "neutral" rate of about 4 percent at some point.
"Certainly, current policy is ultra-accommodative and no policy-maker believes that it is consistent with price stability," Morgan Stanley economists Richard Berner and David Greenlaw wrote in a note to clients this week.
Fed had its chance
But the Fed has already passed up a chance to be more aggressive, some analysts said.
In early June, bond markets had fully priced in a half-percentage point rate hike at the Fed's August policy meeting. But on June 15, Fed Chairman Alan Greenspan made dovish comments to Congress, and fears of a half-percentage-point hike faded, according to bets by investors on fed funds futures contract.
"If Greenspan really wanted to move more aggressively, but felt constrained by the market, he could have taken the opportunity given to him on a silver platter before he made [those] remarks," said Anthony Crescenzi, bond market strategist at Miller Tabak & Co.
Crescenzi, who has been fairly hawkish about inflation, said that had he been Fed chairman at the time, he would have taken that opportunity, given signs of accelerating inflation.
Other analysts believe the Fed's playing it just right. They believe the economy is still fragile, showing signs of less-than-robust growth lately. Meanwhile, though inflation is gathering steam, it wasn't that long ago that deflation -- in which prices are falling, hurting corporate profits and the economy -- was the big concern.
Together with the market's nervousness about even small rate hikes, there would seem to be many reasons the Fed should be content to take it slow right now.
"This is not a 'ripping off the Band-Aid' kind of situation, where you know how much the pain will be and that you'll be fine afterwards," said former Fed economist Lara Rhame, now senior economist at Brown Brothers Harriman. "We don't know how well the economy has healed. The Fed remains very concerned ... that they might overshoot and give the economy such a shock they'll have to cut rates again."
Of course, if inflation rears its ugly head, Fed officials have said they'd shed their tame approach in a hurry, and they said so again in their policy statement on Wednesday.
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