TheUSeconomy will have to gut it out from here without additional help from the Fed or the government. Today’s inflation report shows that the Federal Reserve had little flexibility to lower beyond the quarter of a percent they announced on Wednesday fearing inflation and a falling dollar. As to government actions; early signs are that credit bailout efforts will fall short of easing tight credit. InWashington, political wrestling has already stalled and likely killed relief from the alternative minimum tax. There appears scant hope that a Democratically controlled House and Senate will continue Bush’s tax cuts. So the combined prospects of higher taxes, tighter credit, already high gasoline, falling house prices, slowing consumer demand, and higher prices on everything else if inflation takes hold, almost surely will be enough to stall theUSeconomy.

The economy is drifting very close to the edge now and what would have taken a gale force wind a few months ago might well be accomplished with little more than a wisp now. You might remember that in last weeks’ Brief we posed the question as to whether the Fed had lowered rates enough to sustain economic expansion. We noted that future reductions might be constrained because of growing threats of inflation as well as a dramatically sinking dollar. But without them, we noted the odds were greater that the economy would falter. The past several weeks’ revelations of worsening banking and credit problems, combined with a host of economic releases showing deterioration have changed the tone of the Fed dramatically.

Since Greenspan made his comment in February of this year that theUScould be in recession by the end of this year investors and economists have largely taken the rosier view; that is until the last few of weeks. Oil flirting with $100, the dollar in freefall, anemic retail sales, housing in the depths, and a sub-prime mess, the extent of which is still unknown, have seemingly aligned forces against this economy. The majority view remains on the favorable side, but comments from the minority have grown louder and bolder.