The Fed’s Dilemma

Today’s inflation report that wholesale prices rose 2% in November, the worst such report in 30 years, the Fed is facing a real dilemma over what to do next. In their latest meeting they left rates as they were but said they were still worried about inflation, a worry that seems to have been borne out today. But at the same time, the housing market shows continuing signs of weakening with permits for new home construction declining for the 10th straight month. So, if the Fed raises rates to keep inflation in check then they will be exacerbating the housing slump which, as readers of this blog know, is thought by many (me included) to be the likeliest candidate for leading the economy into a recession in the near future. So what will the Fed do? Worry more about growth or worry more about inflation? I think they will worry more about inflation and raise rates again if this report turns out to be anything more than a temporary spike. But what do you think? Are you worried more about inflation than a recession?