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...Well, there it is: ten months and six Fed interest rate cuts into this slowdown, inflation is nowhere in sight. Friday, the Labor Department reported that the PPI - the Producer Price Index, which measures commodities prices - fell 0.9 percent in July, its biggest decline since August 1993 and a whole lot more than the 0.3 percent forecasters had settled on. (Those guys seem to be wrong an awful lot lately, don?t they? Maybe somebody should...
...good news is that Alan Greenspan, if he?s so inclined, should have absolutely no reservations about cutting short-term interest rates August 21 when the Fed meets again, and his seventh cut of the year should bring the Fed funds rate down another quarter-point notch to 3.5 percent, or - if he wants to scare us - 3.25 percent. The bad news - and this is the least certain, mind you, of the bad news we got this week - is that some folks are starting to make noises about? DEFLATION...
...Fed done enough? Is it just a matter of time? Or are we slowly slipping, slipping, slipping into a future of low low prices, flat flat stock prices and recalcitrance in both the business and consumer sectors...
...Inflation is technically the Fed?s chief enemy, but at a time when the world?s economies are in various states of slumber, from the U.S.? hangover to Europe?s lethargy to Japan?s coma, deflation is its worst nightmare. Deflation happens when people simply refuse to buy stuff, and any money that gets put into the economy by the central bank just sits there, unborrowed, uninvested, unspent. And there?s almost nothing a Greenspan can do about it, except wait. (Hey - he's fine. He invested in Treasurys in 2000 and beat the Street by a mile...
...while that scenario of central-banker impotence does bear some resemblance (for now) to our current situation - six interest-rate cuts, and this week the Fed?s own Beige Book had it that the recessionary woes that have long afflicted the manufacturing sector began in June and July to spread elsewhere - it?s not the smart bet yet. Because while the drop in the July PPI was dominated by a 5.3-percent decline in the crude goods portion of the report - and that was in turn dominated by falling energy prices, namely a 17.7-percent drop in gasoline prices...