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Rising prices, cooling economy.

San Jose Mercury News (San Jose, CA)

| May 02, 2005 | COPYRIGHT 2007 San Jose Mercury News. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan.  All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)Copyright

May 2--When the Federal Reserve meets Tuesday, it will almost certainly raise interest rates again in an effort to slow down the economy and keep inflation in check. That might not seem strange except for one thing: The economy already appears to be cooling off thanks to rising gas prices.

Rising gas prices. Rising inflation. Rising interest rates. Slowing economy. It's a combination not seen since the late 1970s, when Americans endured an era of "stagflation." And it represents a tricky balancing act for Fed Chairman Alan Greenspan.

Greenspan appears most worried about tamping down modestly increasing inflation, even if the rate boost will also trim economic growth. But many experts say the additional drag created by higher gas prices has made it difficult to know best how to steer the economy while avoiding a crash landing.

"It really is a puzzling problem for policy-makers," said Scott Anderson, senior economist at Wells Fargo. "It's…

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