Fed Tries to Stave Off Stagflation

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WASHINGTON - The Federal Reserve says it's ready to cut interest rates to strengthen the weak economy even though that could mean more inflation, on top of record oil prices, according to Federal Reserve Chairman Ben Bernanke.

He is battling to keep a shaky economy from going under after huge blows from the housing and credit crises, while trying to contain inflation.

And according to a new government report, the economy needs all the help it can get. It grew at an annual rate of only six-tenths of one percent at the end of last year.

As home sales and prices drop to record lows, mortgage foreclosures are up 57 percent over a year ago.

Energy and food prices are also on the rise. And record oil highs are making their way to the pump, where the national average to fill up a fuel tank is about $3.15 a gallon.

More than likely the tide won't turn anytime soon. Analysts are expecting gas prices to hit anywhere from $3.50 to $4 this year.

"I'm very disappointed. It's outrageous," one consumer said.

All the signs are pointing toward stagflation, which happens when prices go up and the economy slows down.

"The economic situation has become distinctly less favorable since our July report. Many of the challenges now facing our economy stem from the continuing contraction of the U.S. housing market," Bernanke said Wednesday.

Bernanke is back on Capitol Hill today, reassuring lawmakers that economic growth is the top concern.

He signaled the Fed will likely continue its rate-cutting streak when it next meets March 18.

But lawmakers here in Washington are eager to do more.

This month, they already passed a $168 billion stimulus package, which will put rebates worth hundreds of dollars into the hands of most taxpayers.

And Wednesday, the House passed a bill that would add $18 billion in new taxes on the five largest oil companies. The money would be used to support the development of alternative forms of energy, which supporters say could lead to lower gas prices in the years ahead.

Democratic leaders want to put the legislation on the fast track in the Senate, where a GOP filibuster earlier killed a similar bill.

But even if it passes this time around, White House officials say President Bush is expected to veto the bill because it singles out oil companies. Oil companies say they already pay more taxes than many other industries, and Republicans say the new taxes would just lead to higher prices at the pump.

But for now, the Federal Reserve is concentrating on lower prices. lower prices for money by lowering interest rates in the hopes it will boost a sagging economy.

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