he Federal Reserve has increased the federal funds rate by 1.75 percentage points in less than a year, but it's clear that it has more to do.

Given the strength in the economy, as well as structural changes that have taken some of the bite out of rate increases, the Fed likely will need to apply its foot to the brakes several more times before year-end.Economists said that underlying demand for goods and services is so strong that rates probably will need to be pushed still higher before the economy slows significantly. The statement announcing the latest rise in the federal funds rate, a half-point increase on May 16, made it clear that officials on the Federal Open Market Committee expect additional policy moves in the near future.

In their words, ''The risks are weighted mainly toward conditions that may generate heightened inflation pressures in the foreseeable future.''

Despite the Fed tightenings to date, the real federal funds rate - that is, the rate adjusted for inflation - remains well below cyclical peaks registered in the early 1980s. Meanwhile, economists are boosting their forecasts for inflation this year to above 3 percent.

Purchasing managers are particularly alert to inflation, as it affects the materials and services required in manufacturing. Members of the National Association of Purchasing Management said in their latest semiannual forecast that the U.S. economy will continue to be strong in the remaining months of 2000. Inflation was their No. 1 concern, followed by higher interest rates, material shortages, labor availability, energy, labor and benefits costs and poor deliveries.

A major problem facing the Fed, analysts caution, is that its policy moves have essentially no effect on the economy in the quarter in which they are implemented. Effects remain small in the quarters immediately following the change as well, they said. It is not until three years later that the full effect of a policy shift is felt in the form of slower economic growth.

Meanwhile, the forces of the new economy have changed the business cycle to some extent, although it isn't entirely clear just how. There is a lot of guessing involved in the art of conducting monetary policy.

As adjustable-rate mortgages have become more common, the housing market is cushioned somewhat from rising interest rates. Furthermore, economists said, operating efficiencies in the mortgage market have so improved in recent years that it is now relatively easy and inexpensive to obtain a new loan. That could mean that rates will have to rise higher than in previous cycles to produce a dampening effect. A slowdown in housing construction eventually will curb demand for durable goods.

The Fed is right to focus on the needs of the U.S. economy, but it should also be aware that its actions are having painful effects elsewhere in the global economy. Many developing countries are struggling to match the Fed's rate hikes to keep their currencies from plunging against a rising dollar.

Some Asian currencies have fallen to their lowest levels since the currency crisis of 1997. And analysts said the euro's much-mentioned weakness is nothing compared with the decline of the Polish zloty, the South African rand and the Philippine peso.

The key will be whether the U.S. economy can be guided to a ''soft landing,'' and whether Japan and Europe can take up some of the slack and help to keep global demand strong.

Real U.S. gross domestic product grew at a 5.4 percent annual rate in the first quarter, down from a 7.3 percent growth rate in the fourth quarter of 1999. The rate of growth needs to slow further to reach a sustainable level of around 4 percent.

While Fed policy-makers need to be careful not to raise rates to levels that will trigger a recession, they are right to be vigilant in fighting inflation. Inflation expectations have been rising and the Fed must beat them back before its credibility is tarnished.

Yes, rising interest rates are a worry. But rising inflation is the No. 1 threat. If it gets to the point where workers demand bigger wage increases to offset higher prices, the economy will enter a dangerous cycle that ultimately will leave everyone poorer.

In the past three episodes of monetary restraint, the Fed has raised the fed funds rate by more than 3 percentage points. The current round may be little different. With growth in the money supply accelerating, liquidity is too plentiful. Inflation always involves excess money and credit relative to available resources. The Fed is justified in making sure that our currency is not debased.