tes further noting that the index that they closely follow and contains a broader rage of public traded US stocks, the Wilshire 5000, is up for the year. Even though they began raising rates gradually 9 months ago, it takes almost a year for the economy to feel the full effects. In this case the results of the interest rates increased could be felt as last as the second half of 2000. Yet the economy has not slowed down, and the demand for goods and services continues to increase as wealth does. One of the ideas that has been presented to Greenspan by the fed officials was to take bigger steps in raising the interest rates. They feel that this will decrease the money demand in a quicker fashion. In turn these actions will lead to lower consumer spending, and thus decrease the inflation rate. However, because of the erratic patterns in todays high tech economy Greenspan is expected to stick to his pattern of more gradual increases to the interest rate. Eventually when monthly loan payments increase enough, consumers will back on purchases and investments. The article points out an example where the rate for a new 30 year fixed-rate home mortgage is up to 8.5% from 7.75% nine months ago in June. In the situation of a $150,000 home loan, this new interest rate will add almost $100 to each monthly payment. Over time the full effect of the interest rates will be felt. One economist, James Glassman of Chase Securities takes a different look at the new interest rate. He points out that the rates that the Fed has set are fairly high in comparison to the rate of inflation as it is currently in the United States. The formula that Glassman follows examines the inflation rate when food and energy items are excluded because they are so volatile. With these items removed the rate of inflation in the US is less than 2%. As with other measurements, this rate can be subtracted from the interest rates to find a real interest rate which ...
