Too much tightening might lead to a hard landing, but easing policy curbs too soon could send prices surging again and undermine government credibility.
Neither of these two scenarios looked very sustainable to economists: the first, in the view of most, meant tightening too quickly.
The Fed is also determined not to repeat Japan's mistake in the 1990s, by tightening monetary policy too soon.
We are somewhat isolated from the national economic trends - although we're starting to see some of the credit tightening here, too.
You know, they've taken a lot of criticism for having moved too slowly in the last tightening cycle and for fueling the housing and credit bubbles.
However, on Monday the euro softened against the dollar over concerns that despite a pick-up in growth for core manufacturing nations a monetary tightening will prove too onerous for its second-tier members.
FORBES: IB FX Brief: Euro Slips As ECB Hike Gives Investors Cold Feet
Was 2.87% still a bargain compared to historical prices in the industry or had the tightening made the offer too expensive?
But if the markets are right that Malaysia is borrowing too much, devaluation with domestic belt-tightening is one remedy.
During the next decade, the Fed returned to Keynesian discretionary monetary policy, trying to steer the real economy to long term growth by manipulating interest rates, loosening when the economy seemed to turn down, tightening when this seemed to go too far and inflation started to rise.
Tough negotiations are under way on the EU's 2014-2020 budget, with some member states arguing that the Commission's funding targets are too ambitious in the current climate of national belt-tightening.
After three years of belt-tightening, the combination of these forces is proving too much for increasing numbers of businesses, although the effect on employment is as yet only modest.
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The Fed did not reverse and begin tightening monetary policy until June, 1999, and by then it was too late.
FORBES: Roll Out The Bubbles, We'll Have A Barrel Of Fun (For A While)
And even if Washington never gets around to an energy or climate bill, state renewable portfolio standards and tightening federal emissions regulations are going to keep demand for renewables from falling too far.
He welcomed recent government announcements about tightening enforcement around drug-driving, but said the "planned changes focus too much on penalties rather than prevention".
There are two possible explanations for this tightening: lenders and borrowers are feeling exceptionally risk-averse, or regulators are forcing banks to be too cautious in building up capital and liquidity for a rainy day.
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