Things can only go up . . . or down

Marketplace Staff Nov 8, 2007
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Things can only go up . . . or down

Marketplace Staff Nov 8, 2007
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Scott Jagow: [After “The Numbers”] So that’s the backdrop for Ben Bernanke’s visit to Capitol Hill today. The Federal Reserve chairman will surely get quizzed on where the economy is headed. Paul Brandus has more.


Paul Brandus: The Fed has two worries: inflation and a slowing economy. But each has a very different remedy. Raising interest rates controls inflation, but lowering them stimulates the economy. Last week, the Fed cut a key interest rate by a quarter percent.

But it’s likely to be the last move for now, according to economist Allan Meltzer of Carnegie Mellon University. He says the challenge for Fed chairman Ben Bernanke is two-fold:

Allan Meltzer: The economy is . . . he sees as balanced between the possibility of a downturn and a possibility of inflation. So he’s going to try and maintain a stable policy and avoid both risks.

Meltzer thinks inflation will be the Fed’s greater concern going forward, thanks to surging oil prices.

Meltzer: I think that represents a much more serious threat to the cost structure of American enterprise and to consumer spending.

In fact, he adds, it’s likely to overshadow the downturn in the housing market.

In Washington, I’m Paul Brandus for Marketplace.

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