Even though markets were gored last Friday, with the Dow Jones industrial average sliding 617.78 points in its biggest one-day point drop ever and the Nasdaq Composite Index diving by a record 355.49 points, the selling frenzy did not spin out of control and market systems worked effectively. The tricky task for the Fed, however, is if the pullback turns into a chaotic rout. If money flows dry up and markets cannot operate, analysts said the Fed would have to consider flooding the financial system with cash by cutting interest rates to prevent a meltdown. But no signs of that were present Friday. For now, analysts say the pieces are falling into place for a gradual slowdown.
Interest rates are higher.
Oil prices are higher than a year ago. The stock market has come off a lot. The question is by how much and when. So far the Fed has raised those rates to 6 percent, and the Reuters poll showed all analysts look for another upward move at the May 16 meeting of the Fed's policy-makers. But analysts said the Fed may now find itself caught in a tug of war between stock prices and inflation.