Fed Between the Dog and the Fire Hydrant

The Fed’s Open Market Committee meets Tuesday and most speculation is that the money watchers will hold interest rates where they are.

The alternatives are to raise or lower rates. However, the Fed is in a difficult position, so no matter what it does, it may be wrong.

There are two groups with opposing ideas that are rooting for their preferred Fed action.

One group says the recession is the most important economic problem and another rate cut would provide some stimulus for the sluggish economy. They view the economy as either already in a recession or on the slippery slope towards one.

The other group says the biggest concern should be inflation and putting the brakes on rising prices. They argue that a rate cut would fuel even higher oil (and other commodity) prices.

A rate cut could weaken the dollar even more and, since most oil is denominated in U.S. dollars, it would take more of them to buy oil.

The consensus seems to be the Fed will hold pat and not change rates at this meeting.

However, if the economy’s condition continues to deteriorate or inflation indicators begins flashing red, the Fed will be blamed.

And if the economy remains in status quo with barely perceptible growth rates and dangerous trends in inflation, the Fed’s inaction will be criticized.

Sometimes, you just can’t win.

Read more at: What is the Fed and What Does it Do?.