Thursday, April 24, 2008

Might the Fed Pause on Its Headlong Rush Into Inflation?

Today's Wall Street Journal has a page one analysis of the decision facing next week's meeting of the Federal Open market Committee. Will the FOMC consider the inflation dragon that is looming larger and larger? Greg Ip tells us "The Federal Reserve is likely to cut its short-term interest rate by a quarter of a percentage point next week -- but then may be ready for a breather."

So far the run on the dollar and the inflation's reemergence has not engaged the
Fed's attention. The more's the pity. With imports at 17 percent of U.S. GDP, a 10 percent drop in the dollar is equivalent to a $240 billion dollar tax hike. An extra one percent on the CPI takes $138 billion out of Americans' purchasing power, about as much as the stimulus package adds.

Vincent Reinhart, a former Fed Director of Monetary Affairs and now with the Heritage foundation tells us the problems facing our monetary mavens. The tittle of his commentary reveals the larger global issues that confront us: "Behind the Food-Price Riots."

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