THE Fed has tightened interest rate policy and not before time. Inflation may at first glance look like a non-issue in the United States, Europe and Australasia but like a noxious weed it keeps coming back to ruin the economic picture. Only Germany seems to have fully understood the effects of runaway inflation and in doing so established a central bank to ensure that never again would its economy be ravaged by hyper-inflation. The blame for the recession throughout most of the Western world in the 1990s can be attributed to inflation which was allowed to grow unimpeded during the go-go 1980s. For this decade to be successful, the major economies of the world must do everything in their power to ensure that growth is achieved but only under the caveat that inflation remains under control. Mr Greenspan appears to have heeded the lesson. He promises to keep winding up borrowing costs while there is a sniff of inflationary pressures. Through the dollar peg, the Hong Kong economy is inextricably linked to the US and interest rates here will have to rise at some stage to protect the peg. The 0.25 percentage point rise in the US on Friday may not be enough to warrant an increase in Hong Kong but the next US tightening must surely lead to higher rates in the territory. That is good news. Higher borrowing costs will help take some of the sting out of the property market although many speculators now do not need mortgages to fund their activities. Hong Kong must keep its eye on inflation as much as any other country. The US has refocused the world's attention on the issue: Hong Kong must take note. IF an official sanction on the breach of stock rules is to provide any deterrent to the financial community, it must be seen as equitable and practicable. The proposed method of penalty on William Cheng Kai-man last week certainly serves such purpose. Mr Cheng was asked to pay up to $50 million as compensation to those shareholders who lost money as a result of his breaching the takeover code in 1988. The compensation should be the difference between the price at which the general offer should have been made and the price which shareholders as at November 30, 1988 eventually received when they sold the shares. The regulators are now faced with a situation for which no clear precedent exists. In Mr Cheng's case, a serious alleged breach of the code, denying shareholders a general offer, has taken place and remained concealed for five years. In the past cases of Paladin and Jademan, the regulators redressed the similar wrongdoings by asking the largest shareholders to launch a general offer to the existing shareholders. The same method of redress simply could not work given that most of the original shareholders had disposed of their shares throughout these long years. The share registrar may help tracking down the victims, although not all will be identified. The method may not be the best, but it is certainly the best available.