“The Fed is paranoid of inflation and looks constantly at economic indicators,” Toal explains. These key indicators now reflect a slowing in economic activity and a slight increase in inflation. The producer price index is up, unemployment is the lowest it has been in 30 years at 4 percent, and we’ve got the labor situation. Short-term and long-term federal fund rates now are close together, yet another sign that the economy is slowing, says Toal, who forecasts an inflation rate of 3.5 percent for the near future.