What does this aRtiClE make you think about? What kind of descion are you making because of it?

Fed%26#039;s Pianalto Says Economy Slowing, Hurt by Spending (Update1)

By Steve Matthews and John Brinsley

Jan. 17 (Bloomberg) -- Federal Reserve Bank of Cleveland President Sandra Pianalto said the U.S. economy has shifted to a lower rate of growth, worsening in the past month with the housing slump reducing consumer spending.

``The negative influence of housing on overall economic performance could affect the outlook for some time,%26#039;%26#039; Pianalto said to the Association for Corporate Growth in Cleveland. ``We are also seeing a related slowing in consumer spending, perhaps in response to reduced household wealth. Tightened credit market conditions could also hinder economic growth this year for both businesses and consumers.%26#039;%26#039;

Pianalto%26#039;s remarks reinforce the view that Fed policy makers will reduce interest rates in response to recession fears. Chairman Ben S. Bernanke, who speaks before the House Budget Committee today, said last week more rate cuts ``may well be necessary%26#039;%26#039; on top

What does this aRtiClE make you think about? What kind of descion are you making because of it?no fax loan

The rationale behind the drop in consumer spending makes clear sense, and is why I largely believe we are heading into a recession (this is not the end of the world, as recessions are perfectly normal!). The jump that was made in December in the unemployment is a historical indicator of a looming inflation.

Consumer spending is very important to the economy, as it makes up ~70% of our $12-15 Trillion economy. When that slows, the economy slows.

So what they mentioned makes all the sense in the world. Unfortunately, the normal response for the Fed is to lower the Fed Funds rate (which is what they are anticipated at doing). Problem is, inflation is high, and lowering the rate will make this worse as well as decrease the value of the dollar. When the dollar drops in value, Oil becomes expensive since it is traded internationally in dollars. With Oil becoming expensive, so too will food prices.

I think we should hold off on lowering rates until at least Q2 in order to see if the Headline Inflation Rate drops. But they won%26#039;t listent to me (go figure.).

So what am I doing? Not much. Recessions mean a time when people cut back on frivilous spending. As for investments that are long-term, like 401(k)s and IRAs, nothing to worry about. Long-term investments have time on their side, so they naturally rebound. In fact, investing in these long-term vehicles during a recession helps as it increases the capital injections into the economy and the Funds are cheaper due to the market corrections, meaning that when the market rebounds, so too does your portfolio.

As for me, I am in the short-term investment arena, and for the most part I am not too worried. A typical safety route for insurance on short-term investments is bonds, for capital insurance (not capital preservation, as that is for long-term investing). But with the Credit Crunch, it is likely the only safe bet is the 3 month T-Bill.

But thats just me. I invest with a cool head, and never emotion.

Hope this helped.

What does this aRtiClE make you think about? What kind of descion are you making because of it?

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accurate summary of well known facts.