Once again, the phrase "irrational exuberance" is haunting the money mandarins at the Federal Reserve Board. How else to explain why investors seem to be paying little heed to the rate hikes engineered by the central bank? The stock market is unusually volatile, but still strong. And long-term interest rates are down sharply in recent weeks. For instance, 30-year Treasury bonds yield less than six-month Treasury bills. Yet investors are behaving rationally. They've absorbed the lessons the Board members have taught them over the past two decades.

Under the leadership of Paul Volcker and Alan Greenspan, the Fed has consistently lectured the nation on the economic benefits of low-to-stable inflation. Yes, they said, the struggle to bring inflation down is painful, but the reward is strong growth and low unemployment. To be sure, they added, the nation's central bank occasionally may make a preemptive strike against incipient price pressures. Not because the Fed is anti-growth or mean-spirited, but to maintain the condition of price stability that nurtures growth. Finally, in Congressional testimony and speeches given around the country, the Board mantra is, economic growth does not cause inflation.

Now, look at what is happening in the markets. Long-term interest rates are down because investors expect inflation to stay low. Yes, the economy is growing rapidly and unemployment is at a three-decade low. But strong economic growth won't send the general price level higher so long as the monetary authorities are vigilant. And lower interest rates offer critical support to steep stock market valuations.

So let's put to rest the clever phrase, irrational exuberance. Investors are acting rationally by anticipating that the good times will continue. Whether they are right is a different question.