Recently released minutes of the Federal Reserve Board meeting reveal that the Fed is increasingly worried that the already beginning recession may be much worse than initially feared.
Fed governors are concerned that housing markets are still plagued by falling prices and foreclosures. Credit markets are tighter now that many investors are not backing the riskier securities that have supplied credit to mortgage markets.
These are the fears that prompted the Fed to slash interest rates by 3/4 of a percent, its largest reduction in a quarter of a century. There was also mention of another fear that complicates the Fed’s decision.
Energy and food costs have been skyrocketing in recent months. Some economists predict that inflationary pressures will drive up costs of other consumer goods at a faster pace.
The U.S. economy has not seen a situation quite like this since the 1970’s. That is when recession was paired with a period of hyperinflation. Such a combination could be disastrous for the world economy as well as the U.S. economy.
Job cuts are increasing, mortgage applications are down, food and energy prices are up with no signs of recovery. All of this may contribute to a perfect storm that plunges the economy into a deep recession.
There was one positive sign that may indirectly show evidence of some increased investment by business. The price of copper is rising, which could be evidence of increased construction activity. However, this is hardly reason to begin hoarding your pennies!
Tags: recession