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Posted by warren mosler (208.49.176.241) on 08:13:13 10/30/07
> "Against that, the Fed will have to weigh the risk that a cut will stoke
> > inflationary psychology."
>
>
> i think this is code for the nightmare situation for inflation expectations
> becoming unhinged....
But why use 'code' and not just say it?
No where in the Fed's play book does it say "when faced with a persistent, trending, double negative supply shock of food and energy that's driving cpi through 4% cut rates to stave off possible short term economic weakness"
In fact, the all agree without hesitation that the cost of addressing a near term econ slowdown is trivial vs allowing 'the inflation cat to get out of the bag' and having to bring it down later.
Another quote that comes to mind: "once core starts to rise it's too late"
The fed sees the post sep 18 $ weakness, energy price spike, gold spike- inflation in general- as the 'price' it paid for 'insurance' against the systemic failure of the monetary system.
They are not looking for an 'excuse' to cut. They worked long and hard to gradually bring inflation down and don't want to get ahead of, and not behind the inflation curve.
They will cut only if they continue to fear systemic failure.
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