TEXT OF INTERVIEW

KAI RYSSDAL: I'm pretty sure we are allowed to say this word on the radio, but it's making a whole lot of economists out there cringe. Stagflation is what I'm talking about. It's an economic bogeyman. Stagnant growth combined with rising inflation. But with gross domestic product growing by 5.3 percent last quarter, we got to wondering how stagnant the economy really is. So we put in a call to a guy who might know. David Wyss is chief economist at Standard & Poor's.

DAVID WYSS: Yeah. Stagflation, of course, arose from the late '70s, early '80s. That was a period when growth slowed to an average of about two percent a year. Less than that through most of the late '70s. The inflation rate was heading up into double-digit range by the end of the 1970s. And the unemployment rate joined it in double digits in the early 1980s. That was the worst economy we've seen in the post-World War II era.

RYSSDAL: All right, well, then do a little compare and contrast for me. I think we're pretty far from that today.

WYSS: Today, actually the economy looks better than average. We're seeing growth slowing down, but we're looking for about 3 1/2 percent this year, maybe 2 1/2 next year. But that'll probably be the slow year. The inflation rate is rising, but it's rising to a little over 2 percent. That's hardly anything to get excited about. And the unemployment rate at 4.6 percent is a full percentage point below its historical average. This is really more like a normal economy. In fact, better than normal economy. Certainly not the very bad economy that we looked in the '70s and early '80s.

RYSSDAL: All right. Well, then, give it up for me. What's anybody worried about?

WYSS: Well, I think what everybody is worried about is number one, Could it come back? And number two, Are we doing things that could make it come back. One argument for that, the Fed needs to tighten now because if they don't, we'll gradually work ourselves back into that situation of the mid-70s.

RYSSDAL: It's been a tough patch for Wall Street the past six of so weeks. You know, I mean, we've gone from everybody saying, "Oh, we're at these highs," to a very, very tough 10 days or so. Are the problems in the stock market that we've been seeing a symptom or a cause of everybody talking about inflation?

WYSS: Both. They're a symptom of the fact that the Fed is worried about inflation, and therefore looks like they're going to tighten more than people had expected earlier. But they're also a cause because people are looking at the stock market and saying these guys must know something I don't. In fact, you know, we're overdue for a correction in the stock market. This is about as long as we've ever gone without at least a 10 percent pullback in the market. So it's time.

RYSSDAL: So how long do you think it's going to take for all this talk of stagflation to sort of disappear?

WYSS: I think it'll disappear when the Federal Reserve clearly stops raising interest rates. My guess is we've got two more rate hikes to go.

RYSSDAL: Two?

WYSS: I think you'll see one next week, almost certainly. And my guess is we get one more after that that will get us to 5 1/2 percent. I think the Fed then will have to reverse course next year.

RYSSDAL: You were actually at the Fed in the 1970s weren't you, when all this was going on?

WYSS: I was at the Fed, yeah, when this was getting started at least. I was at the Council of Economic Advisory when we got into the real stagflation period.

RYSSDAL: Tough times? A little tense?

WYSS: These were not fun times. This is something we thought that, you know, Hey, low unemployment would be somewhere around 6 percent. And it would be nice to get back to 5 percent inflation. We're nowhere close to that period yet.

RYSSDAL: Times change. David Wyss at Standard & Poor's in New York. Mr. Wyss, thanks a lot for your time.

WYSS: Thank you, Kai.