WASHINGTON -- Federal Reserve Board Chairman Alan Greenspan faces an especially daunting task Wednesday, when he is scheduled to bring the Senate Banking Committee up to date on the Fed's goals.
The big question continues to be whether he is getting ready to load up his shotgun again to take another blast at the invisible enemy -- inflation.
Mr. Greenspan by now is a veteran at dodging questions from lawmakers who want to know which way interest rates are headed.
This time, he will have to explain why, after months of talk by high-paid Wall Street analysts about rising commodity prices, a weak dollar, and tightening labor markets, inflation has not gone any higher.
Making matters hotter for the chairman, last week the Labor Department reported that wholesale prices in June were unchanged compared with a year earlier and that consumer prices were up only 2.5%.
So it seems that even a crackling economy that has created 3.8 million jobs since President Clinton took office can't generate the small upswing in prices that would provide a handy rationale for higher interest rates.
There is some evidence that the economy is cooling as consumers retrench and as reaction sets in to the four rate increases the Fed engineered earlier this year. Unfortunately, such evidence is scattered, and the bond market vigilantes want the Fed to cuff the economy once again.
Fed policy makers remain concerned that the economy is about done chewing up spare capacity and that if it keeps growing rapidly, inflation will surely follow.
None other than Wayne Angell, who quit the Fed earlier this year to earn his fortune as chief economist for Bear Stearns & Co., has called on his former colleagues to jack up short-term rates from 4.25% to 5.25%. There are other analysts who say the Fed should bump up rates by half a percentage point to 4.75%.
Mr. Greenspan is no doubt aware of the calls from Wall Street for more monetary restraint, which carries the added promise of propping up the dollar on foreign exchange rates.
So some analysts believe the chairman will use the hearing before the Banking Committee to lay out a fresh rationale for raising rates, in effect putting the public on warning.
He knows that he cannot use the old rhetoric about raising rates to get monetary policy in "neutral," because any new round of rate increases would be seen clearly for what it is -- an attempt to slow growth.
But members of Congress are not likely to take kindly to the notion of another blast by Greenspan at inflation. And Greenspan knows from experience that if Fed officials go too far in raising rates, they could send the economy veering toward the edge of the road.
Many analysts believe Fed officials will wait until their regular Aug. 16 policy meeting before raising rates again. If they do, they may be able to administer some late-summer shock therapy to the bond market at an opportune time.
Congress will be on recess, administration officials will be out of town on vacation, and Wall Street traders will be at their beach houses on Long Island.
There won't be a lot of people around to howl.