Raising the Rates and Keeping the Faith

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Say what you will about Alan Greenspan — and people have said plenty — the man is never predictable. The Federal Reserve Chairman made headlines again Tuesday, announcing a quarter-point raise in key interest rates. The hike, meant to stave off inflation in these times of hyperbolic growth and spending, caught some analysts off guard. "This raise is a bit unexpected," says TIME financial writer Bernard Baumohl. "There was a lot of uncertainty as to whether the Fed would move, since the economy has been showing signs of slowing down on its own." Example: Key consumer indicators such as retail sales and home purchases have eased in the past 10 months.

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Even if they were a bit surprised by Tuesday's announcement, traders can now breathe a sigh of relief and enjoy their holidays. "This is the Fed's third tap on the brakes since summer," says Baumohl. "And it's probably not a bad thing, since it will end speculation for the next couple of months about any new movement on rates." It's likely, adds Baumohl, that this is the last interest rate adjustment we'll see in 1999, and perhaps well into 2000 — for reasons close to the chairman's heart. "Greenspan is up for reappointment in June of next year," says Baumohl, "and it looks like he wants back in. So he'll be careful not to upset what seems to be an exceedingly strong, healthy economy."