...thanks to Calculated Risk which links to this rather worrying graph - while the TED spread (of which we have heard before) starting to rise again. Caution, though - it's still only just above 1.0, well below crisis peak levels.

Meanwhile, the Fed is in something of a dilemma; it could lower rates, thus increasing the risk of inflation, or raise them and deepen a recession. It has therefore chosen masterly inactivity.

The Federal Open Market Committee left its benchmark rate at 2 percent yesterday and said ``upside risks'' to prices have picked up. The statement also said consumer spending is ``firming,'' while acknowledging that rising energy prices will curb growth into 2009.

The FOMC cited ``the elevated state'' of some measures of inflation expectations and dropped an April forecast of a ``leveling out'' in commodity prices. The officials want to keep their options open on rate changes in case the credit crisis worsens and the economy deteriorates after consumers spend their tax rebates, Fed watchers said.