The Labor Department said that the Consumer Price Index rose 1.1% last month. Energy alone was up 6.6%. Both figures were higher than what Wall St. expected.

Inflation is here to stay. Energy and commodities prices, the sources of most of the pressure, are global issues. They cannot be changed by the Fed. The inflation in China moves to the US though imports. The increase in oil prices from Venezuela goes into every tank of gas across the globe.

When they marched on Moscow, both the French in the 19th Century and the Germans in the 20th Century learned the improbability of winning a two-front war. The Fed, if it is indecisive, could face the same odds.

Fixing inflation should be largely abandoned as a goal because it is not one which can be obtained now.

The Fed can act, hard and fast, to get economic growth back on track. It will need to lower interest rates once more, and perhaps twice. It will need to keep the emergency lending windows open for the next several quarters. It may have to offer capital to regional banks just as it has money center banks and investment houses. It might as well hook up with the Treasury and put money into Fannie Mae (FNM) and Freddie Mac (FRE). With the housing crisis growing, only a fool would believe they will not need several billion dollars.

Win the winnable war, and let inflation take a course which cannot be blocked. OPEC and the world’s farmers have too much leverage, at least for now.

Douglas A. McIntyre

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