It's spelled m-o-n-e-y

Transaction demands in a rising economy -- including the investment tax incentives and a new spate of Wall Street deal-making activity in software, biotech, entertainment media and financials -- must be accommodated by the Fed. So perhaps the Fed's latest rate cut will be associated with a significant liquidity buildup. Perhaps there will be a continuation of rapid monetary-base growth.

But these are not certainties. Once again, the Fed has left everyone guessing.

Oddly, coverage of the Fed's latest move in the three leading newspapers -- The Wall Street Journal, The New York Times and The Washington Post -- never mentioned the word money. M-O-N-E-Y. And it's the creation or destruction of money that is the Fed's primary job.

It was too much money chasing too few goods that caused the inflation of the 1970s, and too little money in relation to the availability of goods that has caused the deflation of the last few years.

Newspaper writers, listening carefully as Fed staffers whisper in their sensitive ears, are blaming deflation on subpar economic growth, and they say the lagging economy has created a growing "output gap" between potential and actual economic activity. But we learned painfully in the 1970s that inflation can coexist with recession. Milton Friedman coined the term "inflationary recession," which then became known in the media as stagflation.

Then came Reagan advisors Arthur Laffer and Robert Mundell. They argued for monetary restraint as a cure for inflation and significantly lower tax rates to produce an economic recovery. This supply-side mix is just as important today. The cure for deflation is monetary expansion. And yes, the recipe for economic growth centers on more tax-rate reduction.

This week's action from the Fed seems to suggest that they will not be raising their target interest rate for a long time. This should mean that open market operations will keep the money spigots wide open. If so, this is very good news. President Bush has sponsored a huge tax cut. The Fed must support it. It must keep showing us the money.