That explosion you heard this morning was the minds of various economists as they looked at the latest economic data.

For the first time in about six years, there stands a better-than-even chance that the

Federal Reserve will raise the

fed funds rate by 50 basis points, to 6.5%, at the May 16

Federal Open Market Committee meeting. The May

fed funds futures traded on the

Chicago Board of Trade

are discounting a 57% chance of a 50-basis-point hike in May, compared with a 28% chance yesterday.

But the conviction among economists for a 50-basis-point move isn't as strong as one would think. Rather, today's data demonstrate to them that those looking for the Fed to "get it all over with at once" are fooling themselves. Fifty or not, the Fed's going to keep tightening, and tightening, and tightening.

Yes to 50

Not that there aren't more than a few who think the Fed is indeed going to hike the fed funds target by 50 basis points. The core March

Consumer Price Index, excluding food and energy, gained 0.4%, and although April's figure likely will be smaller, economists believe price increases are no longer confined to the gas pump.

"Companies are beginning to pass through nonlabor cost increases to purchasers," says Mitchell Held, economist at

Salomon Smith Barney

. "It's not enough to say, 'Maybe inflation is coming, and the Fed has to respond to remain ahead of the curve.' My humble feeling is that they'll go 50 basis points."

There's evidence that manufacturers are beginning to regain pricing power. After being unable to increase prices due to an influx of cheap imports from depressed Asian markets, an April study by the

National Association of Business Economists

indicates that price inflation picked up noticeably in the first quarter.

Labor costs are rising as well. The

Employment Cost Index report showed that costs are rising at a 4.3% rate on a year-over-year basis, and that's the highest since the fourth quarter of 1991. Benefits costs are up 5% on a year-over-year rate, the most since 1993.

For several quarters, several economists felt that the tight labor markets and strong corporate profits would result in higher wage costs -- which finally seem to have shown up in government data.

Some spin this positively: Rising profit margins (as in the manufacturing sector) give companies the freedom to raise wages in any way they'd like. However, some believe that power is fleeting -- that the goods and wage cost increases will harm profits and translate into higher prices.

All of this is likely to make for a rocky environment for the stock market for the next several months. The market has corrected sharply from being severely overvalued, but rising wage pressures and the Fed's continued efforts are unlikely to help the market in the coming months.

Since the correction, the averages have traded in a range. The

Dow's

been stronger than most other averages, but it hasn't been lighting it up.

No to 50

The shock a 50-basis point rate hike could cause to the equity market is one

Alan Greenspan would like to avoid, says David Jones, chief economist at

Aubrey G. Lanston

. While some believe the Fed chairman has been targeting growth and the stock market, in reality he's been mindful of the market, carefully letting the investment community know what his intentions are.

There were rumblings that several Fed governors wanted to raise rates by 50 basis points at recent meetings, but Jones believes Greenspan doesn't think the situation is that urgent.

"He still wants to move incrementally, and based on emerging financial circumstances at each of those periods, sort of monthly," says Jones, who still believes the Fed will increase the funds rate in at least three, if not four, quarter-point hikes from now through August.

Indeed, it strikes some economists as a form of vindication for a Fed that steadily hiked the funds rate, from 4.75% to 6% over the last 10 months, in the face of criticism from those who felt the monetary policy committee was targeting growth.

"We're in that early part of phase two of the expansion, where the party's rocking, everybody is having a great time, and Greenspan is saying, 'Hey, you shouldn't drink so much,' " says Diane Swonk, deputy chief economist at

Bank One

.

What seems to have been lost on the market is that it takes about a year or more for increases in the short-term funds rate to have a pronounced effect on slowing economic growth and heading off inflation. Which means the first hikes during this cycle -- the ones from summer 1999 -- are just starting to trickle into the market.

The bond market, of course, adjusted for increased risk of inflation, as interest rates steadily rose from late 1998 through the early part of this year. The stock market laughed at such silly sport, no matter how forceful Greenspan got in his

public comments.

It took a CPI report to freak out the equity market -- and with the Fed's tightenings unlikely to end soon, it's going to have a hard time getting back on its feet.