ROBERT SIEGEL, host:
This is ALL THINGS CONSIDERED from NPR News. I'm Robert Siegel.
MICHELE NORRIS, host:
And I'm Michele Norris. The stock market rallied today, and the price of oil was down sharply for the second day in a row, but the most important economic news may be the inflation numbers.
Consumer prices went up in June by an annual rate of five percent, a level we've only seen once since 1982. You might remember 1982. That was the tail end of the brutal inflationary period known as the malaise. Well, whether or not we're headed for a new round of malaise is not yet clear, but there is no question now that inflation is a serious concern, and NPR's Adam Davidson joins us now from New York. Adam, can you put this in context for us? Is this just one more piece of bad economic news?
ADAM DAVIDSON: In a way I'd say this is almost the opposite of the bad economic news we've been hearing all week and last week. I think there's two economic crises going on right now at the same time, and they're sort of opposite crises.
One is that the economy is too cold, too slow, too sluggish. That's the problem we saw with Fannie Mae and Freddie Mac and other big financial institutions at risk of collapse, the worsening job numbers, etc., etc. But we also have the economy being too hot, too fast, speeding up too much, inflation getting out of control.
That's obviously fueled by gas prices, food prices, but it's now seeping out into the rest of the economy, and so you have these two crises going on at the exact same time, and the problem is the solution to one will surely exacerbate the other.
NORRIS: So what's worse? What should we be worried most about, that the economy is too hot or too cold?
DAVIDSON: That's what everyone's trying to figure out, and that's what's making this such a scary time for economic policymakers. It seemed at times, and probably, say, Monday of this week was one of those times, that the biggest problem was that the economy was too cold, too slow, that the whole thing might collapse into a deep, deep recession. That was a fear.
With today's numbers, with inflation far higher than people had expected and far higher than we've seen in a long time, well, that shows us that the fear of the economy heating up too much is also a huge concern.
The thing is that that cold crisis, the crisis of banks collapsing and people getting laid off, that people feel right away, and they see it in the headlines. The inflation crisis can be a more insidious, slow-moving crisis, but it can last much longer and can cause real problems for even longer periods of time.
So you can rest assured that there are a lot of people today trying to figure out how do we balance these two.
NORRIS: You know, Adam, with all this talk about the hot economy and the cold economy, it almost sounds like we're talking about the three bears and their porridge, but is there some sort of middle ground here? Can we have an economy that's not too hot or not too cold, just right?
DAVIDSON: Yes, let's hope so. That's certainly what the Fed and the treasury secretary and Congress are trying to figure out. Today we saw that Congress is talking about a stimulus package. Well, that would stop the cold problem, but that would only heat up the inflation. The Fed might raise interest rates. That'll stop the inflation problem, but it'll just slow things down some more.
We are in uncharted territory. The economy has never behaved just like this before, and nobody really knows clearly what the right move is.
NORRIS: Adam, thanks so much.
DAVIDSON: Thank you, Michele.
NORRIS: That was NPR's Adam Davidson, speaking to us from New York.
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