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Sunday, June 18, 2006

Fighting a Looming Recession

(Keywords & tags: , , , , is up to the task of fending off a ?)

All the hallmarks are there; an unstable stock market, low consumer confidence, massive federal and personal debt and - in terms of wage stagnation - people are falling behind inflation. Gas prices aren't helping any. Is the second Bush recession at hand? The Seattle Post-Intelligencer asks this question in an article titled Bernanke's dilemma: Avoiding a recession.

WASHINGTON -- Four months into the job and the honeymoon is over for Federal Reserve Chairman Ben Bernanke. The stock market is gyrating. Inflation is picking up. Economic growth is slowing down. It's an unsettling picture for Alan Greenspan's successor.

Bernanke has made clear that his biggest concern at the moment is making sure inflation does not spread through the economy. The main remedy is raising interest rates.

Yet that also is Bernanke's dilemma: How high can raise rates go before they slow an economy that already is showing signs of lethargy?

"In the eyes of many, Bernanke will truly earn his stripes as Greenspan's successor if he can tame inflation and avoid a recession," said Greg McBride, senior financial analyst at Bankrate.com.


In other words, recession may be so difficult to avoid that doing so will earn hew Fed Chairman Bernanke the respect of Wall Street. And Bernanke stumbled right out of the gate.

According to the Associated Press, "Fed Chairman Ben Bernanke told an international monetary conference that while rising energy costs have helped slow the pace of economic growth, core inflation _ excluding energy and food _ was near the central bank's tolerance level and could warrant further rate tightening.

"[...]

"Stocks were already under pressure from a jump in oil prices fueled by Iran's threat to cut oil exports if Western nations punish or attack the country over its nuclear arms program, unnerving a market already concerned that severe hurricanes could devastate Gulf Coast refineries again this summer.

"According to preliminary calculations, the Dow plunged 199.15, or 1.77 percent, to 11,048.72." We can only hope that Bernanke has learned that discretion is the better part of valor.

"Consumer prices for the first five months of this year are bounding ahead at a 5.2 percent annual rate, compared with the 3.4 percent increase for all of 2005," SPI reports, "Prices - excluding food and energy - are advancing at a 3.1 percent pace this year; it was 2.2 percent last year." So inflation is already a problem. With consumer confidence scraping bottom and Bush's approval on the economy hitting 29%, he's got his work cut out for him.

Let's hope he's up to it.

--Wisco

2 comments:

Byrne Hobart said...

No.

Wisco said...

Concise.

A better answer is perhaps.