[turbo6bar]

Ok, the equity market says the Fed is done. Futures markets are discounting the likelihood of an August rate hike. We have a slowing economy and elevated levels of inflation (12 year highs). One can argue that 12 yr highs in inflation are not bad, because inflation has trended really low the past decade.

There are two problems I see:
1) Bernanke says a slowing economy will quell inflation. I think he is right to some extent, but I believe that contained inflation requires a collapsing US economy. Why? The inflation we are seeing is not contained to the US. It's a worldwide phenomenon.

2) If a slowing economy persists, Bernanke may have to reduce rates in 2007. Will this not make inflation worse yet?

It seems like the real key to inflation is moderating demand in developing countries (namely India and China). The only way WE (the US) can accomplish this with the tools at hand is collapse the US economy and subsequently the world economy.

So where am I wrong?