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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Real Man who wrote (74997)	2/21/2008 10:10:04 AM
From: Crimson Ghost	Respond to of 116555

EDITORIAL Reality-Based Rate Cuts Published: February 21, 2008 Since last summer, when the financial markets began to crack, Federal Reserve Chairman Ben Bernanke has taken his share of criticism. When he didn’t immediately cut interest rates, he was accused of being too timid. When he cut aggressively last month, critics said he had panicked. The Board Blog Additional commentary, background information and other items by Times editorial writers. Go to The Board » Criticism comes with the job. And now that he’s shown that he can take the hits, Mr. Bernanke would do the markets a favor by making it clear that if inflation continued to rise, he would have to raise rates far sooner than Wall Street would like. That dose of reality may be the only way to avoid a whipsaw in the market that could negate much of the good from the rate cuts. If price pressures continue to build — and the latest data show no letup — Mr. Bernanke may have to raise rates rapidly beginning later this year. In the minutes of the Fed’s meeting in January, released on Wednesday, some Fed officials noted the inflationary dangers. Others seemed to dismiss the risks, believing that a slowing economy would automatically relieve price pressures. That could be wishful thinking. Globalization, once a force for driving prices down, has taken an inflationary turn. This week, oil prices have repeatedly closed above $100 a barrel, driven by global demand and a weaker dollar. Consumer prices in January were 4.3 percent above their level a year earlier, one of the largest year-over-year increases in years. Import costs also grew last month, at an annual rate of 13.7 percent, the highest since the Labor Department began keeping records in 1983. Higher inflation — and higher interest rates — could lead to slower growth. So the challenge for policy makers is to find a way to lessen the impact of a slowdown today, without simply pushing off a contraction until next year. The Bush administration and Congress have not inspired confidence with their recently passed stimulus package. The White House insisted on putting tax rebates at the center of the effort, and Democratic lawmakers went along. Rebates will provide a boost by pumping cash into the economy. But they are much less effective than other measures that could have been taken. Today’s economic problems are complex. But playing down the dangers only leads to confusion, false hope and half-measures that may fit a political agenda but are poor economics. Resolving the problems with the least amount of pain would be easier if policy makers — and candidates — were frank about the tough times ahead. NY TIMES