market as a way to cool the economy and cut the threat of inflation, they have little to show for their efforts so far.

Though bank stocks have endured a difficult summer, many other stocks have held on to their high valuations despite a pair of Fed rate increases and the distinct possibility of another hike next month.

After moving in a narrow range for several months, the Dow Jones industrial average -- which the public equates with the market itself -- is still up 20% for the year, and not much below its all-time peak.

Many Wall Street observers think it very possible for the Dow to roar off to a new high in an explosive relief rally even if the Fed imposes another rate hike, because it would almost certainly be the last hike of the year.

In short, if there really is a stock market bubble, it has proved remarkably difficult to prick.

And as long as the bull market endures, even in its summer holding pattern, consumer confidence is likely to remain high. That in turn will drive the strong borrowing and spending trend that has propelled the nation's economy into its ninth year of expansion.

Still, rising interest rates may already have slowed the market's momentum and further rate increases would apply greater pressure. Doing so in a gradual and deliberate way is apparently the route chosen by the Fed and its chairman, Alan Greenspan.

"The Fed wants to cool the stock market, and hence consumer confidence and spending, but not kill it. Sending the stock market into a bearish tumble would strangle the business expansion," said economist and money manager A. Gary Shilling.

It is a delicate task indeed. As Mr. Shilling sees it, the long bull market gives the Fed more power over the economy now than in many decades. "In fact, the Fed may have more power now than it has ever had," he said Friday.

In the early postwar era, few individuals owned stocks -- a legacy of the market debacle of the 1930s, Mr. Shilling noted. Most funds were kept in commercial bank demand and savings deposits, so the Fed had easy control of the economy through bank reserve requirements and open market operations.

But the proliferation of other monetary instruments, from savings and loan deposits to money market funds to credit cards, vastly expanded the definition of money and reduced the Fed's control. The central bank has had to change the federal funds rate -- the overnight rate for interbank loans of excess reserves -- by larger and larger amounts to ride herd over the economy.

"In effect the commercial banks bear the brunt as the Fed leans on them to influence the entire credit structure," said Mr. Shilling, who heads his own firm in Springfield, N.J.

However, stock prices are also highly sensitive to Fed actions, and the long bull market of the last two decades has attracted individual investors in unprecedented numbers.

"Today over 50% of American households own stocks directly or through mutual funds, more than twice the level of a decade ago," Mr. Shilling noted in a recent letter to clients. And stocks are unusually susceptible to Fed action because valuations are so high.

"It may not take much more Fed action, if any, to precipitate a significant bear market," he said. That would in turn have a sizeable impact on consumers and the economy, probably generating a recession.

To be sure, not every one thinks there is a stock market price bubble.

"The risk of being out of equities is much greater than being in them," said Wayne D. Angell, chief economist at Bear, Stearns & Co. in New York and a former Fed governor. "A bubble is an after-the-fact phenomenon that occurs because of mistakes in Fed policy."

As he sees it, the central bank is "on course" after a pair of precautionary summer rate tightenings, but probably will not raise rates further.

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