Inflation Pressures Are Easing but Rate Cut Forecast Remains Uncertain

The New Year is beginning where the old one ended -- with uncertainty about when – or whether – the Federal Reserve will begin cutting interest rates.

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Glum and glummer pretty much summarizes the continuing steady flow of dismal economic reports, capped last week by unemployment data that had economists straining for words to describe just how bad the situation has become.

Staggering, unprecedented, dramatic, transforming – analysts and headline writers have struggled for adjectives to characterize the $700 billion Wall Street bail-out plan Treasury Secretary Henry Paulson has unveiled in an effort to shore up the nation’s faltering financial markets.

Battered, berated, bloodied and not entirely unbowed, the massive financial rescue bill aimed at stabilizing the economy and the financial markets finally won Congressional approval last week, and was signed immediately into law by President Bush. But if ever there was an illustration of the similarities between making sausage and laws, and of the chaotic mix created when partisan brinkmanship and presidential politics collide with a potential crisis, this was it.

The federal government’s takeover of Fannie Mae and Freddie Mac dominated the financial news this month. The action was unprecedented, to be sure, and, depending upon whose analysis you accept, either unavoidable or unnecessary. The impacts are still being assessed.