Stagflation?

Fourth-quarter growth in gross domestic product was lower than expected, rising only 0.6%, compared to forecasts of 1.2% growth and way below the 4.9% growth in the third quarter...

The core personal consumption expenditure (PCE) deflator, an admittedly wonky sounding piece of econojargon that is actually a very important indicator of inflation, rose 2.7% on an annualized basis. That's up from 2% in the third quarter and was higher than the 2.5% that economists were expecting...

But the threat of stagflation, a period of both economic sluggishness and rising price pressures, has to weigh on the Fed when it puts together its carefully constructed statement.

The central bank needs to continue to talk tough on inflation and may need to signal to the market that after today's expected half-point cut - which would leave the federal funds rate at a pretty accommodating 3 percent - that it's time to hold steady for awhile.

As bad as the subprime mortgage mess has been, letting prices for many consumer goods run out of control by further weakening the dollar with aggressive rate cuts could have an even more damaging effect on the economy.

read the CNN story

A return to the late 1970s?