Consumers Adjust Now, when prices start to accelerate, the assumption is that the authorities will put on the monetary brakes.

Will rising inflation force the Federal Reserve to slam on the monetary brakes and bring the bountiful economy to a threateningly slow gait?

Into this vacuum stepped the Federal Reserve, slamming on the monetary brakes to reduce demand and, ostensibly, to suppress oil-driven inflation.

As economists have said for so long, we have pushed our fiscal accelerator to the floor while holding hard on the monetary brake.

"Next they should start to worry, because there are increasing signs that they have stepped on the monetary brakes too long and too hard," Mr. Grannis said.

The Fed has been slowly nudging up interest rates since last March, and the economy has been showing some recent scattered signs of slowing under this monetary brake.

While Mr. Greenspan can curb inflation by slamming on the monetary brakes and raising interest rates, in a deflationary environment the Fed has few levers to pull.

He warned that any more favourable rate would have inflationary consequences which would cause the Bundesbank to "step hard on the monetary brakes".

"What the French economy needs now is not to put the monetary brakes on against inflation - that problem has been solved," she said.

Still, the Fed's action was no surprise, as a variety of recent economic measurements show that inflation remains at barely noticeable levels, indicating no need to apply the monetary brakes.