Rising Inflation, Falling Stocks: Greenspan Stuck in a Tough Spot

Fed Chairman's Burden

SAN FRANCISCO -- Houston, Alan Greenspan has a problem. Most Wall Street economists and several of my RealMoney.com counterparts dismissed this morning's stronger-than-expected Consumer Price Index report as an anomaly -- much as they did with last Friday's stronger-than-expected Producer Price Index. But the Federal Reserve chairman isn't likely to be so nonchalant about additional evidence inflation may not be dead, after all.

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Simultaneously, however, Greenspan faces a stock market that is crying, begging, and desperately pleading for another rate cut. Despite rumors of an "emergency" Fed meeting in the wake of economic and political crisis in Turkey, major averages suffered another round of losses today. The Dow Jones Industrial Average fell 1.9% to 10,526.58, its lowest close since Jan. 12. The S&P 500 sank 1.9%, to 1255.27, its lowest since Oct. 18, 1999. The Nasdaq Composite dropped 2.1% to 2268.93, its lowest close since March 3, 1999.

As if that weren't bad enough, technical analysts say all three averages have now broken important trend lines, suggesting more weakness to come. With investor confidence rapidly declining and fears rising, it seems only another rate cut from the Fed has the power to stem the bleeding, even if only temporarily. ...