The Post reported that the new predictions ran as high as 7.5 percent, a percentage point and a half higher than the current 6 percent target for the federal funds rate, the interest rate financial institutions charge one another on overnight loans.

Now, a large majority expected the Fed to lift the target next Tuesday by half a percentage point rather than its usual quarter-point, according to the Post.

The Post said part of this shift in expectations had come from the sheer strength of recent economic news. But it was also linked to the growing realisation that when the economy's efficiency is increasing rapidly, it may take a higher level of inflation-adjusted interest rates - or "real" interest rates - to provide much braking power. The Fed's top policymaking group, the Federal Open Market Committee, raised its target for the federal funds rate to 5.75 percent on Feb 2, describing it as an effort "to avert rising inflationary pressures in the economy."

Fed Chairman Alan Greenspan and many of his colleagues have argued that large gains in stock market wealth and home equity values have encouraged rapid increases in consumer spending and helped keep the economy operating at levels that sooner or later are likely to cause inflation to get worse.But some Fed officials have been saying in recent speeches, congressional testimony and interviews that the accelerating growth of productivity - the amount of goods and services produced for each hour worked - also has lifted the bar for interest rates, according to the Post.

"This expansion is being driven by investment, and in such a case real interest rates have to be higher than they otherwise would be in order to balance the demand for and the supply of investment funds," the Post quoted Fed Vice Chairman Roger Ferguson as saying in an interview.The Post noted that mortgage rates have continued to rise, which could dampen house sales and new home construction. But the newspaper said the rise in real interest rates had not led to any reduction in business spending plans since the payoff from new investments kept rising along with productivity growth.