Economists are split on what is the bigger danger, inflation or a weak economy. This sentiment is also reflected in Fed policy, which is to keep rates steady at 2% until it becomes clearer which is the bigger problem.
"Of 53 economists surveyed, 22 said the Fed should be more concerned by economic weakness than inflation, while 21 said inflation should be the greater concern. The rest said the risks were equally balanced, or declined to answer."
The economics are as challenging as any time since the 1970s when energy induced inflation and a weak economy created a similar environment.
For now, markets seem to believe that the Fed will keep rates steady. The Fed is stuck in a pickle and is no doubt hoping that oil and commodity prices moderate so that it has the latitude to deal with what appears to be a weakening economy.
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