ALL EYES ON FED; WALL STREET AWAITS NEWS OF INTEREST RATE HIKE.

Byline: Martin Crutsinger Associated Press 

Federal Reserve Chairman Alan Greenspan's pledge to move ``promptly and forcefully'' to counter inflationary threats has analysts convinced the central bank will boost interest rates today for the second time in eight weeks.

But the real question might be what happens after that. Will Fed policy-makers see enough signs of a slowdown in economic growth that they won't feel the need to boost rates even higher in the fall?

Wall Street on Monday was clearly taking the view that today's rate hike will be all the Fed needs to contain the inflation threat. The Dow Jones industrial average shot up 199.15 points, closing at a record 11,299.76.

But private analysts cautioned that this market euphoria could be overdone. They noted that while the economy has slowed in recent months, it is still expected to grow almost 4 percent this year, a robust rate that has pushed unemployment down to its lowest level in three decades and left the Fed worrying about rising wage pressures.

``The Fed is fearful that the economy is expanding too strongly, that labor markets are too tight and that inflationary pressures will develop if things don't slow down,'' said economist Mark Zandi at Regional Financial Associates in West Chester, Pa.

Zandi said he believed the Fed would raise rates not only this week, but again at its next meeting Oct. 5. And he predicted that the central bank likely would hint at future moves in today's rate announcement in part to toss cold water on an overly optimistic stock market.

``I think these stock market highs are of concern to the Fed,'' Zandi said. Much of the strong consumer spending driving the economy, he said, is coming because consumers feel wealthy thanks to their investment gains.

Part of the market's confusion over Fed intentions could stem from botched signals by the central bank, some analysts believe.

On June 30, the Fed boosted its target for the federal funds rate, the interest banks charge on overnight loans, by a quarter-point to 5 percent, the first increase in two years.

While the markets had widely expected that rate hike, the Fed announced at the same time that it was moving its policy directive, which foreshadows future moves, back to neutral.

Markets, which had feared the June 30 rate hike would be just the first in a series, rallied on the Fed's announcement of the neutral policy directive. That boosted stock prices back up and pushed down long-term interest rates, which are set by the market.

``I think the Fed completely misread the potential market response to a shift back to a neutral bias,'' said David Jones, economist at Aubrey G. Lanston & Co. in New York. ``Greenspan tried to correct the situation by sounding more hawkish in his July testimony.''

Delivering his midyear report on the economy to Congress on July 22, Greenspan said the Fed still was prepared to move ``promptly and forcefully'' to counter inflation, remarks taken as strongly signaling a rate hike at their August meeting.

In all of this maneuvering, the Fed is walking a delicate line. Greenspan has been worrying since December 1996 about ``irrational exuberance'' pushing stock prices too high. At that time, the Dow was hovering around 6,500, and it's gone up by 70 percent since then.

But while Greenspan and other Fed policy-makers are clearly nervous that stock prices are inflated and could suddenly come crashing to earth, they don't want to be blamed for causing that by pushing interest rates higher than necessary to deal with the problem the Fed is supposed to worry about - inflation.

Many see the Fed's goal this year as taking away the stimulus it provided last fall when it cut interest rates three times to counter a growing threat that the Asian crisis could topple the United States into a recession.