To Cut or Not To Cut? Economists Debate Fed View

Does the Federal Reserve foresee inflation, recession -- or the dreaded stagflation? John Silvia, chief economist at Wachovia, and John Ryding, chief economist at Bear Stearns, debated the rate cut question on "Morning Call."

Silvia told CNBC's Mark Haines that he sees a "strong possibility" of a rate cut. He acknowledged that Monday's inflation data underscored the "basic expectation" of the Fed "staying on hold" for the rest of 2007. But the Wachovia economist maintained that the "bias is toward lowering" rates.

Why? He explained that consumption data suggests that the current quarter will prove to be the "fifth straight period of subpar economic growth" -- and said monetary policy, which always "lags" behind current events, will catch up with his outlook in the third quarter.

But Ryding disagreed, pointing to a "stagflation feeling" -- a reference to high inflation and low productivity occurring simultaneously. Ryding noted that the Fed examines more "outside" metrics than do many U.S. investors. He said that while core U.S. inflation is down -- specifically apparel and home prices in March -- the Fed won't give as much weight to such data as it will to China and its ballooning growth.