Yesterday, as the Fed was in the process of cutting the funds target to a sharply negative level in real terms, I happened to catch a glimpse of a CNBC survey of what Americans are worried about. Unfortunately I can't find it on the CNBC website, but I got the gist of it. CNBC asked people to say which of four economic outcomes they were worried about: higher inflation, falling stock prices, job losses or falling house prices. You could pick more than one. Just over 50% were worried about jobs and housing; 40% were worried about falling stock prices; and almost two-thirds -- 65% -- were worried about inflation.
Yes, even after months of scary stories about recession and banking failures, a majority of Americans appear to want the Fed to do something it was set up to do -- protect the value of the currency. Only 40% of them want it to do what it sometimes seems to be most concerned about doing -- stopping the stock market from falling. I've mentioned before that amid all the screaming and yelling on CNBC's morning business coverage, there's one guy, speaking from the floor of the Chicago exchange, who never tires of saying that the Fed can cut rates to zero if it wants: it won't be able to prevent the wrenching economic adjustment that years of excess have made inevitable. That guy's right.
The Fed has an unenviable job right now, especially in a US election year. But Bernanke and his pals need to be very sure that the palliative measures they take to ease the impact of the credit crunch don't set the stage for a two-decade battle to get inflation back under control.
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