It seems even the Fed doesn’t know what do to in the face of the current economic problems. Minutes from the December 11, 2007 indicate a wide range of views about the correct course of action. See for example the article in yesterday’s WSJ:
The Dallas and KC Feds wanted no change in the target fed funds rate. Boston, Minneapolis, and SF wanted half point cuts. Everybody else wanted a quarter point. While the minutes suggest disagreement, we won’t know for sure the details until the transcript of the meeting is released years from now.
The uncertainty of the Fed reflects the general uncertainty in the financial markets. However, since December 11, the latest jobs report indicates an upward tick in unemployment and a continued downward trend in job creation. Seeing that unemployment/employment data are lagging indicators, it seems as if the Fed might be behind the curve somewhat in terms of preventing a slowdown in growth. Their hesitancy stems of course over the various signs of inflation (gold, oil, commodities). Long term rates have fallen in the last few weeks, suggesting the investors are not so worried about inflation. This might suggest that the Fed has more room to be aggressive at their meeting at the end of this month.