Fed Cut Raises Inflation Fears

Borrowers, exporters stand to gain, but critics find move 'self-defeating'
By Rob Quinn,  Newser Staff
Posted Mar 19, 2008 10:27 AM CDT
Fed Cut Raises Inflation Fears
Traders work as a television screen displays the Fed board rate decision announcement in a booth on the floor of the New York Stock Exchange, Tuesday, March 18, 2008.    (AP Photo/Richard Drew)

(Newser) – The Federal Reserve's latest rate cut might boost the economy with cheaper credit, but economists worry a freed inflation genie could be behind any magic, the Washington Post reports. Commodity prices rose to record levels in expectation that the rate cut would keep demand high, and the price hikes are liable to soon filter down to the checkout line.

The rate cut will be a plus for some struggling sectors of the economy and might ease painful mortgage-rate resets, but critics wonder if the benefits will be worth taking the risk of soaring prices. "It will be very painful to squeeze the inflation out of the system when this mess is all over," noted a Harvard professor. (Read more Ben Bernanke stories.)

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