The tug of war inside the Federal Reserves on the rates – rate hike or lower rate or stay put?
Sondra Huffington
Jul. 14, 2007

The Federal Reserve is really concerted about the nasty stagflation in the economy. A tug of war is happening within the Federal Reserve. On one side is the rising inflation from commodities, and emerging economy wages have prompted a serious discussion on containing the inflation.

But on the other hand the subprime mortgage lending situation, increasing mortgage defaults, foreclosures, and bankruptcies have created a chilling effect within the Fed.

Many analysts believe Fed will stay put for a long time – perhaps twelve months. But some analysts are calling for an aggressive rate cut. At the same time some are confident Fed will raise rates soon.

The most important priority for Fed is to protect the economy from recession. That is why they do not want to keep inflation in control.

But in a stagflation scenario, Fed will like to take care of the economy first. They will cut rates, revive the economy, and then control the inflation.

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