The Federal Reserve's top monetary policy makers meet today to decide whether to raise interest rates again and fulfill the expectations of most money market analysts or hold off awhile and fulfill the wishes of most administration economists.
Given widespread years of accelerating inflation, the recent strong growth of the economy and increasing credit demand among businesses, most of those who are paid to follow interest rates for a living expect the 11 members of the Federal Open Market Committee to vote to raise interest rates another quarter to half a percentage point.
Indeed, notes Allen Sinai of the economic consulting firm of Data Resources Inc., the money market seem to have "discounted it (an increase), even demanded it."
Sinai himself is one of the few analysts who hopes the Open Market Committee - composed of the six sitting governors of the Federal Reserve Board and five of the 12 regional Fed bank presidents - holds off and waits a few weeks.
"In the last few weeks we've had signs that there is a significant slow-down in the economy. Before I tightened monetary policy, I would want to be sure the economy wasn't fading out."
But Leon Gould, financial economist for the giant consumer finance company Commerical Credit, said all the signs point to the need for some further tightening in monetary policy.
The Fed moves to slow monetary growth by raising short-term interest rates. That makes money more expensive and should slow demand for loans by both businessmen and consumers.
It does not always work that way in the imperfect world of monetary policy.
What the Fed tries to do is figure out what rate on federal funds (money banks lend one another overnight) is consistent with the money supply growth rate it wants to achieve. The money supply is currency in circulation and checking accounts.
The trouble is that sometimes interest rates rise because demand for money is increasing and the Fed may hit its target on the federal funds rate without accomplishing the tightening it wants.
Since late April the Fed has moved to raise interest rates by three-quarters of a point (75 basis points in money market Terminology.) The Fed funds rate, which was about 6.75 percent at the end of April, is about 7.5 percent now.
Gould said he expects the committee to look at credit, inflation and general economic conditions and vote to raise the fed funds rate another 25 to 50 basis points over the next few weeks.
While most members of the financial and business community are so worried about inflation that they would likely applaud a Fed move to raise interest rate, such a move will not rate approval at the White House.
Administration economists are worried that the strong economic growth of March, April and May is playing itself out (much of it represented a rebound from the first quarter when strikes and cold held down output).
Further rises in interest rates could choke off growth in the second quarter, administration economists believe. At the same time they are convinced that the inflation of the first half of the year will subside as farm prices level off.
And the most recent evidence tends to back the administration's contentions that the ecoomy is settling into a more sustainable growth path that will not cause excess demand and bottlenecks that would exacerbate inflation.