Signs of incipient inflation could send the stock market into a steep plunge - and the economy with it.

On the minus side, Mr. Greenspan flagged several specific warning signals of incipient inflation.

In the past, unemployment rates this low and consumption this strong were deemed sure signs of incipient inflation.

As a result, wage gains are accelerating - good news for workers but historically a warning sign of incipient inflation.

At the time, financial markets interpreted the move as a sign that the Federal Reserve perceived incipient inflation that had somehow escaped private economists and investors.

The bond market has been almost demanding that the Fed raise interest rates to stamp out incipient inflation and thus is predisposed to interpreting data as inflationary.

Many economists said they found the latter figure to be a troubling indication of incipient inflation, but Mr. Brady said he did not.

Until now, however, the economy has generated almost no concrete signs of incipient inflation despite a longstanding low unemployment rate.

Stock traders, initially rattled by signs of incipient inflation, thought better of their fears and sent stock prices slightly lower but essentially unchanged yesterday.

That is because the signs the Fed watches in the market are showing little incipient inflation.