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As the woes of the subprime mortgage debacle continue to trickle into other market segments and threaten to send the economy into a recession, everyone is looking for an answer. More specifically many people expect it to come from the Federal Reserve. However, as the eyes of the nation turn to the Fed, it seems the Federal Reserve has run out of options. The substantial rate cuts previously made by the Fed were meant to stave off recession and ease the stranglehold on credit. However, these rate cuts are also resulting in a weakening dollar and increasing commodity prices. Perhaps the biggest inflation concern is high oil prices, which soared in 2007 and are still hovering around $100 a barrel. While most analysts don't anticipate oil prices will increase dramatically in 2008, if oil prices remain near all time highs it could pose a serious problem for the US economy. So what is the Fed to do?

According to Federal Reserve Chairman Ben Bernanke, the best course of action at the present moment is that of a wait and see approach. But can this really be the answer proposed by some of the nations greatest economists? As it turns out, yes, which is possibly one of the reasons we are in this predicament to begin with. No one really asked the tough questions about the potential impact of the subprime meltdown on the rest of the economy until it had already spread. We are now witnessing first hand what happens when you simply wait and see and not surprisingly no one has an easy solution for correcting the housing crisis, growing the economy and keeping inflation in check. No one knows how these events will unfold in the months to come, however we do know there are no easy solutions and we will all have to just wait and see.

Category(s): Random Thoughts
Posted by Jon Grupp at 08:18 PM | Permalink | Comments (0) | TrackBacks (0)