Ed Morrissey

Heather takes the optimistic approach, which is tempered by the reaction on Wall Street. The truth is probably somewhere in between. The drop in federal spending probably is related to the end of the lengthy stimulus packages that drove inflation the past three years, but the inflation is still with us while the federal spending increases are not. This is just one quarter's data, but if inflation keeps outstripping growth, we're looking at stagflation risk again, or an outright recession as consumers stop spending their money and start hoarding it instead.

The big question is what the Fed will do next. They've been itching to cut rates, and that would help keep consumer spending and business investment in positive territory -- but risks setting an inflationary fire again, too. I'd bet on a rate cut at the next meeting anyway.