COVER STORY
What if the Fed's Luck Runs Out?
The consensus of economists is that the Fed will successfully engineer a gentle slowdown and that the six rate hikes already in place, plus perhaps a couple more, will stabilize inflation without triggering a recession. But what if Greenspan & Co. err? Some possibilities:
-- The Fed has already tightened too much. The economy weakens more than is needed. Inflation begins to slow again, but unemployment rises.
-- Unsure about the inflation outlook, the Fed turns the screw a few more times too many. The economy slows more than expected, investors bail out, and unemployment rises sharply.
-- The Fed is far behind in the fight against inflation, allowing it to break out in 2001. The Fed belatedly turns aggressive, raising the risk of a severe slowdown or outright recession. Stocks and bonds suffer. The Fed must decide between addressing liquidity problems on Wall Street vs. inflation troubles on Main Street.
|
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
|
|  |
 | |
RELATED ITEMS
Coming in for a Soft Landing
TABLE: What if the Fed's Luck Runs Out?
INTERACT
E-Mail to Business Week Online
|
