Fed Slashes Rates Again

The risks to the Fed's strategy were apparent in the GDP report, with an inflation gauge showing that core prices excluding food and energy grew at a rate of 2.7% in the fourth quarter. That was up from a 2% rate in the third quarter, and it marked the biggest quarterly increase since the spring of 2006.

Meanwhile, the Fed's combined reduction to its target rate for overnight loans between banks this month was 125 basis points -- the largest one-month move in the modern history of the central bank. That signals that Bernanke is willing to go to extraordinary lengths in an effort to shelter the U.S. financial system from the perils facing it amid a downturn in the nation's housing market, which some observers say is the worst in post-war history.

The move puts the Fed on course to push interest rates below the pace of inflation this year, which could inspire U.S. consumers to borrow and spend more at a time when the nation needs to boost its savings rate for the sake of its long-term economic growth prospects.

"Although the Fed's decision today to cut rates by an additional 50 basis points will no doubt be greeted by accolades in Washington and on Wall Street, cheaper money and easier credit are precisely the wrong tonic for America's ailing economy," said Peter Schiff, author of Crash Proof: How to Profit from the Coming Economic Collapse. "The current distress results from years of overly accommodative monetary policy which has inflated home prices, encouraged Americans to spend too much, and borrow far more than they could comfortably repay."

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