Fed’s High Wire Inflation Fighting Effort Risks Triggering a Recessionary Fall

Imagine a high-wire act performed without a net.  That describes the Federal Reserve’s effort to curb inflation without crashing the economy.  Success will bring applause and relief; failure, a brief downturn, at best, with a prolonged recession the worst case outcome. 

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No!  No way!  Absolutely not!  Never mind.  That pretty much summarizes the dramatic reversal in policy that led the Bush Administration to support a reduction in the capital requirements for Fannie Mae and Freddie Mac, freeing the secondary market giants to play a larger role in efforts to contain the damage caused by the subprime mortgage crisis. 

Financial industry lobbyists are becoming increasingly concerned about proposals pending in Congress that would amend the bankruptcy law to provide relief for subprime borrowers at risk of losing their homes.

Economists and politicians are still debating and recalculating the odds on whether the economy will stumble into a recession or avoid a serious downturn.