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Economists Expect Another Fed Rate Hike This Summer

Complaints from business people and consumers that were heard this week after Alan Greenspan and his colleagues on the Federal Reserve's federal Open Market Committee (FOMC) raised short-term rates some 50 basis points to 6.5% -- their highest level in nine years -- may repeat soon. The May 16 action had consumers worried about the interest they'd have to pay on new-car and home loans, and some said they would scale back the value of their purchases. They're likely to have even more to grumble about in about six weeks, when the FOMC meets again. The committee, concerned about both demand-pull and price-push inflation, is widely expected to raise the federal funds rate another 25 basis points, to 6.75%. "That, hopefully, will be it" for the year, says Bruce Steinberg, chief economist at New York-based Merrill Lynch & Co. But other economists doubt that the Fed will be finished; a late-summer increase of 25 basis points is possible, they suggest. Is the inflation-fighting Fed in danger of doing economic overkill? Probably not -- at least not yet. "Even if the Fed raised rates another 100 basis points, we doubt a recession would occur," says Merrill Lynch's Steinberg.

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