Phew! Inflation Fears Look Overheated

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Those 300 points the Dow shed this week may all have been for naught. A long-awaited harbinger of economic overheating, the May Producer Price Index, came in lukewarm at just a 0.2 percent increase. Seems the big April scare was just that. "April’s price numbers that had everybody thinking inflation were mostly a one-time thing, based on a temporary spike in energy prices," says TIME senior economics reporter Bernard Baumohl. "The evidence of rising prices –- pressures that would force Greenspan to raise interest rates –- just isn’t that strong."

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But it wasn’t that strong earlier in the week, either -– and the Dow has been in a funk since Tuesday. Investors seem to have gotten it into their heads to be scared of the Fed interest-rate meeting on June 29, and today’s mildly encouraging number won’t assuage those fears for long. Not when on the consumer side, retail sales continue to steam ahead and the Consumer Price Index –- the April number that really put the fear of Alan into 'em –- is due on Wednesday. TIME Wall Street columnist Daniel Kadlec thinks it may take Fed action just to convince the markets they can stop biting their nails. "If Greenspan does finally raise rates, the markets will probably rally," he says. "Just out of relief." These days, that’s what passes for irrational exuberance: repeated bouts of irrational doldrums, followed by exhalation.