roduced expectation of higher profit growth, which, in turn, have resulted in higher equity valuations. That surge in equity prices is seen as the primary driver of the "wealth effect", which he believes has created an "imbalance" between demand and supply, raising inflation pressures (Business Week, The McGraw-Hill Companies, Economic Outlook, March 6,2000). Speculations of this occurrence may over the long term indicate that the higher the trend growth of productivity, the lower the inflation rate-due to the restraint of labor costs. However, in the short-run, if productivity growth jumps rather quickly to a higher level, its impact on demand would outrun the existing supply of recourses to meet that demand.
             Since supply cannot be increased quickly enough, Alan Greenspan believes demand growth must be brought back into line with supply growth. The mechanism to achieve a balance, he believes, is higher interest rates. High interest rates have, in fact, dampened home sales, but the overall economy has not cooled enough to reduce inflationary fears. The Fed is still concerned that strong consumer spending will lead to inflation. Right now, much of the strong demand is being satis
             ...