Suddenly, it's last summer all over again.

By passing up another chance to increase short-term rates last week, the Federal Reserve sent bankers and investors back to the mode of watchful waiting that prevailed through the summer of 1996.

The situation then was much the same as it appears now.

The economy was steaming ahead at a presumably unacceptable clip, but amid expectations of a slowdown that would wipe out the need for a Fed tightening.

And so the seat belt sign is on again.

A bumpy ride in the financial markets can be anticipated at least until the Fed's open market committee meets again July 2 to assess business conditions and ponder rates.

"Whatever relief markets enjoy because the Fed remained on hold may be short-lived," according to Bruce Steinberg, chief economist at Merrill Lynch & Co.

During the six weeks until the next Fed policymaking meeting, "every bit of incoming information on the economy will be examined for clues about the Fed's next move," he said.

If a stronger-than-anticipated indicator comes along, such as May payroll employment, "it could lead to some violent pullbacks in the bond market, with feedback in the equity market," he said.

Bank stocks, in particular, could be whipsawed by changes in sentiment about the economy, as reflected in bond prices.

Mr. Steinberg said he thinks the Fed will raise rates again July 2, as a coda to its March 25 quarter-point hike in the federal funds rate, to 5.5%.

But he admitted he had expected action last week, and so did many others.

Why the central bank hesitated is a matter of conjecture, since no statement was issued.

Some observers think the Fed policymakers sense a slowdown and did not want to put themselves in the same spot they occupied at this point in 1995. Then, a series of Fed rate hikes had braked the growth of gross domestic product to a near halt.

But is an economic slowdown really ahead?

"The low unemployment rate and decent jobs and wage growth suggest that consumers will be 'back in the game' this summer," said Nicholas S. Perna, chief economist at Fleet Financial Group Inc.

"I think the economy will look pretty much the same in July as it does now," with low unemployment and low inflation, said Edward Yardeni, chief economist at Deutsche Morgan Grenfell Inc. and one of the Fed's sharper critics.

Mr. Yardeni said he sees no inflation threat and feels the central bank was wrong to raise rates in March.

"I think the economy is capable of growing at more than the 2.5% to 3% rate that has long been perceived as the noninflationary potential at full employment," he said.

"It's now more like 3% to 4%. We ought to add a full percentage point for the high-tech revolution."

With a nod to songwriter John Lennon, Mr. Yardeni suggested, "All we are saying is give prosperity a chance."

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