| Commentary | |
Recession? What recession?
As bad as the housing and credit markets are, many CNNMoney.com readers seem to be a lot more worried about inflation than an economic slowdown.
NEW YORK (CNNMoney.com) -- When I wrote yesterday that the Fed should worry more about inflation than the possible recession, I was expecting to get lambasted for being out of touch with what's going on in the economy.
But to my surprise, many of you also think that the rising cost of gas, milk and other products tied to surging commodity prices is more worrisome than the impact of slowing economic growth.
If you take a look at the TalkBack feature we set up for yesterday's column, many readers wrote in to complain about high energy and food costs.
"Inflation is the real danger here. Millions are on fixed income. Those who were wise enough to have some savings are now being punished for the irresponsible who borrowed as if there is no tomorrow," wrote reader Emad Asfour from Sparta, NJ on our TalkBack blog.
Tom L. from Illinois agreed that rate cuts may be just bailing out people who shouldn't have received big home loans in the first place. He went on to note "that panicky rate cuts ARE doing a bang-up job of trashing the dollar and stoking inflation, which hurts all of us."
Of course, there is no denying that the housing market is in a horrific slump and that the job market is weakening. For many, those problems are the bigger concern than paying more to fuel up their SUV or being forced to buy fewer venti mocha Frappucinos.
"Inflation is meaningless if I don't have an income to pay the prices with," wrote Richard from Houston.
But a lot of you seem to think that the problems in housing and on Wall Street are more isolated.
In a poll that we ran on our home page, half of the more than 13,500 respondents (as of Tuesday morning) suggested that rising food and energy prices were their biggest worry while 21% said they were more worried about the weak housing and job markets. Nearly a quarter of the respondents indicated they were worried about inflation and the slowdown equally, i.e. stagflation.
And according to the most recent quarterly Anderson Forecast by the University of California at Los Angeles, released Tuesday morning, economists there are predicting slower growth but not a recession. That jibes with what the Federal Reserve is expecting as well.
This is not to say that there are no problems - although curiously, 5% of you in our admittedly unscientific poll indicated they were not worried about the economy.
The unemployment rate is likely to rise. And many banks are reluctant to lend to even qualified borrowers. Whether we're technically in a recession misses the point. Even if we manage to skirt one, that's little consolation for those who are struggling to pay their bills or have already faced foreclosure.
But the Fed is addressing the credit crunch as well and it is doing so with more than just interest rate cuts. The central bank has established a series of auctions to lend money to cash-strapped banks with short-term funding issues. And this morning, the Fed announced it would lend up to $200 billion in Treasury securities to primary dealers.
The Fed's action sent stocks surging Tuesday morning. Whether this is just a short-term rally remains to be seen but it further hammers home the point that the problems in the economy are limited to a small, albeit important, section of the markets.
The central bank should be applauded for trying to come up with solutions beyond simply slashing interest rates.
Now, one can only hope that the Fed continues to use more innovative measures to restore order to the credit markets instead of further weakening the dollar and raising inflation pressures with more drastic rate cuts.
If the Fed doesn't bow to market pressure and only cuts the federal funds rate by a half-point next week instead of the three-quarters of a point move that some are calling for, that could be a good sign.
I think reader James from Nashville sums up a lot of the anxiety about the economy most succinctly.
"The Fed continued to cut rates when there was clear evidence showing it stoked inflation. They have gone too far with the rate cuts. By cutting the rates, it seemed to help people who made bad choices and took out debt they could not afford, now more people are going to be in a worse position due to the job losses. The actions of the Fed over the past several months did not help, it hurt. And it will hurt for a long time now."
Have you lost your job, your business or your home? Are you raiding retirement accounts to pay the bills? We want to hear from you. Tell us how you're being affected by the weakening economy and you could be profiled in an upcoming story. Send emails to realstories@cnnmoney.com. 
