:: US staring at double-dip recession as calls for higher interest rates grow

V_Ares (1000+ posts)

Mon Jun-02-08 04:55 AM Original message

US staring at double-dip recession as calls for higher interest rates grow

By slashing interest rates in the face of rising price pressures, has the world's most important central bank sowed the seeds of a new inflationary era? It's an alarming idea, but one gaining currency all the time. Since the sub-prime crisis broke last summer, America's Federal Reserve has dropped rates by 325 basis points - all the way down to 2 per cent. But looser money, along with sky-high oil and food prices, has cranked up US inflation, which now stands at 3.9 per cent. In real terms, American borrowing costs are firmly in negative territory. No wonder the markets are wondering if Ben Bernanke, Fed chairman, has made a grave error. A growing band of analysts has been arguing the Fed should have handled the credit crisis in the same way as the European Central Bank - injecting liquidity into gummed up money markets, rather than lowering rates. Last week, such criticism got much louder. The US is now suffering from the aftershock of the irresponsible policies of Alan Greenspan. By keeping rates too low for too long following the terrorist attacks of 2001 and the dotcom crash, Bernanke's iconic predecessor may have pleased his political masters, but he also pumped up America's gigantic real estate bubble. It gets worse; rest of article @ link: http://www.telegraph.co.uk/money/main.jhtml?xml=/money/...