Goodbye To Gradualism.(Federal Reserve Board economic policy)(Brief Article)

Industry Week, May, 2000 by McCLENAHEN, JOHN S.

After nearly a year of small increases in shortterm U.S. interest rates-- a decidedly gradual 25 basis points at a time-- the Federal Reserve Board is likely to take a giant step this week. Look for Chairman Alan Greenspan and his Federal Open Market Committee (FOMC) colleagues to boost the federal funds rate 50 basis points to 6.5%.

The reason, explains Merrill Lynch & Co., New York, is the employment cost index (ECI). In this year's first calendar quarter, the ECI "rose a painful 1.4%" and was up a troubling 4.3% from 1999's first three months. Merrill Lynch expects another increase in the federal funds rate--of 25 basis points to 6.75%-- when the FOMC meets on June 28.