May 30, 2000

The Federal Reserves case for a rate hike is convoluted. Their logic is: Not even a "new economy" can invalidate the laws of supply and demand that continued strong economic growth with demand exceeding the domestic economys ability to meet it will eventually result in the acceleration of unit costs. To keep the economic expansion on track by slowing economic growth to a more sustainable range the Federal Reserves Open Market Committee, which sets monetary policy, must increase short term interest rates. So goes their story.

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