At first glance the 2001-03 plunge in U.S. interest rates seemed to have delivered the goods: Growth in output and employment slowly accelerated, and inflation stayed within the Federal Reserve's comfort zone, under 2%. However, by mid-2004 the Fed realized that the rate of inflation was creeping up after bottoming out in 2003. And so it slowly but steadily ratcheted up the short-term cost of money. The overnight money rate is back up to 5%. The screw-tightening is not necessarily over. At least that's how Wall Street read Fed Chairman Ben Bernanke's June 5 warning about prices.
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