With oil prices hitting record highs ($100.88) and the dollar falling to $1.51 for 1 Euro, the Federal Reserve is talking about interest rate cuts again. Many are predicting a .5% cut again with the term stagflation resurfacing in economic conversations.
According to Wikipedia, stagflation is a “term used to describe a period of inflation combined with stagnation (that is, slow economic growth and rising unemployment, possibly including recession). This term first came to be recognized in the 70’s.
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Chief economist at Wochovia Corp, John Silva thinks Bernanke may have “overweighted the economic risks relative to inflation”. Many believe the rate cuts and rebates due out this summer are ok for the short term, but very dangerous decisions for our economy in the long term.
Spurred by higher fuel and food costs, consumer prices reached 4.1% in 2007, the highest in 17 years. In January, the Labor Department showed the largest 12 month climb in wholesale costs since 1981.