OMAHA (CNNMoney.com) -- The mass migration of investors to Omaha for Warren Buffett's annual shareholder meeting, which kicks off Saturday morning, is the biggest pilgrimage this side of Mecca. More than 25,000 other people from every state in the Union and dozens of foreign countries go to soak up the wisdom of Buffett and his business partner, Charlie Munger, who sit for hours and answer questions from all comers. Their answers are often so educational and entertaining that any investor can take them to heart and learn from them.

People familiar with Buffett's thinking already have a handle on his views about some questions that may be on investors' minds. Many of the professional money managers want to hear Buffett blow an "all-clear" whistle, saying that the worst of the credit crisis is over and it is safe to invest again, especially in financial stocks. Unfortunately, that does not appear to be Buffett's view.

Several people who have heard him speak privately over the past few days say that he believes that, while the odds of a financial panic are much lower, the financial pain has a long time to run; according to my sources, Buffett does not believe recovery is around the corner at all. And he continues to regard most major financial stocks, because of their enormous exposure to subprime loans and derivatives, as impossible to value accurately or confidently.

The good news is that Buffett continues to insist that no one should invest on the basis of a macroeconomic forecast; his point is that the investor's task remains the same no matter what the markets are doing around you. You should continue to look past stock prices to analyze whether the underlying business can continue to grow, paying special attention to whether customers would continue to want a company's goods and services if it had to raise prices. That's one of the main reasons he found the Wrigley/Mars deal attractive, even though (by conventional measures like Wrigley's P/E ratio) it did not come cheap.

As to the losses on derivatives that Berkshire Hathaway (BRKA, Fortune 500) reported in yesterday's earnings statements, my sources tell me that Buffett feels that Berkshire's "book" of derivatives will pay off big-time in the years to come, and he has no intention of exiting the business, even though it may make BRK's earnings much more volatile. Some of these derivatives appear to be a way of "taking the other side of trade" from insurance companies and other issuers of "equity-indexed annuities."

And don't hold your breath waiting for an announcement to come out of Omaha about Buffett's successor, either as CEO of Berkshire or as chief of investments. The board has already decided on who will fill these roles (between one and four people will take over the investment responsibilities), but their names will not be announced this weekend -- or any other time in advance of the moment they take over officially. Which, judging by Buffett's mental and physical energy, won't be anytime soon. 

NEW YORK (CNNMoney.com) -- Times are tough. The economy is weakening, consumer confidence is at a low and Americans are struggling just to buy basics like gas and groceries. So when it comes to getting goods that fall beyond the bare necessities, shoppers are getting smarter.

Not only has scouring the Web for the best possible price become standard protocol before buying a big-ticket item, but more consumers are employing creative strategies for scoring hot deals on everything from stereos to sweat pants.

Comparison shopping, haggling and swapping discount codes are all becoming mainstream marks of savvy shoppers. And retailers are playing along.

Swapping online coupons or discount codes is one quick way to score a reduced price. Often simply applying the right coupon or promotion code during the online payment process can mean a savings of 10% to 30% or at least free shipping.

"People are feeling a bit of squeeze and are looking for ways to save money without cutting back their spending," said Barry Boone, owner of currentcodes.com and naughtycodes.com.

Web sites like currentcodes.com list discount codes for a number of online retailers from Amazon to Zappos. If you find a code to an online store you're shopping at, just copy it and paste it into the "promotional code" box in the checkout area of the retailer's Web site.

Printable coupons, which can be used in stores, are also readily found online at various Web sites and blogs like printable-coupons.blogspot.com and wow-coupons.com.

And sellers are taking note, offering more coupons more often as the coupon sharing sites surge in popularity.

According to a recent survey conducted by retailmenot.com, 63% of respondents said they would not make a purchase if there was no deal attached. The coupon site expects 4 million visitors in May, up 260% from a year ago, according to co-founder Bevan Clark.

Clark says the savings shouldn't end there. He urges online shoppers to check a comparison service like pricegrabber before making a purchase, and then go to a coupon sharing site "to really stack on the savings," and lastly, watch for any future price drops with a price protection service like priceprotectr.com. Many retailers will refund the difference if the price of a product is reduced within two weeks after the purchase is made.

That's what he calls a "Triad of Shopping Awesomeness."

Awesome deals can be found inside brick-and-mortar stores as well. Whether it is expressly stated or for those in the know, boutiques and big box stores alike are often willing to price match or offer a discount to reel in those that are ready to buy.

Circuit City and Sears not only have price matching policies, but they will undercut a lower advertised price by taking off an extra 10% of the difference. Plus, if customers catch a lower advertised price from another local store within 30 days of the purchase, the chains will refund 100% of the difference.

Even luxury retailers are willing to do what it takes to compete. A sales manager at Montmartre, a high-end clothier in New York City, said that even though it's not written in the store policy, they will match lower prices from other retailers on request and also give a 10% discount to their "VIP" customers, which include those that shop at the store regularly or have reached a certain spending threshold. Not a bad deal for a $400 dress or pair of $190 designer jeans.

In light of the current economic conditions, the store recently added more clients to the VIP list, the manager said, hoping to boost sales.

Even outright haggling - once restricted to flea markets and car dealerships - has become acceptable in the mass retail marketplace.

Most store policies on bargaining are informal, but shoppers with the nerve to ask about flexible pricing may just save some serious cash.

A good place to start is to ask to speak with a manager. Often a sales associate will defer to the store manager, who has more leeway to cut deals. Open the discussion by asking if the listed price is the best possible deal.

Electronics retailer P.C. Richards is willing to negotiate on everything from air conditioners to HDTVs. With a little prodding, a sales manager agreed to take 10% off the retail price of a Garmin Nuvi 200W GPS System, which comes to about $30.

There is more flexibility to haggle on products that have been on display and show some wear, such as shoes or sports equipment. A garment displayed on a mannequin or an item in a store window might come with a discount if it's missing original labels or packaging.

Electronics sold "out of the box" are also a source of great bargains, and usually have little more wear than a few fingerprints. Though they are generally missing instructions, these can often be easily downloaded online.

A manager at Best Buy said he would knock 10% off the price of a product if the box had been opened - even if it was in perfect working order.

At PC Richards, a manager slashed the price of the display model on a navigational system by 50% - not bad by bargain hunting standards.

NEW YORK (CNNMoney.com) -- Only a few years ago, Americans who considered themselves middle class were scrimping to pay for their kids' college education.

Now, many of them are struggling to cover far more basic needs - gas and groceries.

Take Stacy and Chuck Burris. The Pittsburgh, Pa., couple view themselves as solidly middle class. In recent months, however, they've felt anything but.

Burdened by high cost of food and fuel, they are having trouble balancing their budget even though Chuck Burris earns a "comfortable salary"as a software engineer. The parents of five children, three of whom are grown, have essentially stopped eating out and entertaining and are considering canceling the annual family vacation to Maine. They keep to a Spartan shopping list and have planted a larger garden. Instead of buying their 12-year-old daughter summer clothes, they are turning her pants into shorts by cutting off the legs and getting hand-me-downs from family.

Never before in previous recessions have they had to cut back like this.

"We are struggling to stay in the same place," said Stacy Burris, 47. "You don't mind pinching pennies to send your kids to college. You do mind pinching pennies when it's simply to buy some eggs."

Many others nationwide are feeling similarly strapped. Recent consumer sentiment studies and polls show that Americans feel worse about their financial situations and the economy than they have in decades, even as economists debate just where things stands. And people don't expect things to improve anytime soon.

"Consumers are very financially stressed, more than what's indicated by the job and income statistics," said Scott Hoyt, senior director of consumer economics at Moody's Economy.com.

Personal finances worsening

High fuel and food costs, coupled with miniscule raises and shrinking home values, led more people to report that their personal finances have worsened than at any time since 1982, according to a recent consumer survey by Reuters and the University of Michigan.

The future looks grim to them, too. Just one in five households surveyed expect their finances to improve during the next year, the least favorable in half a century. Three-quarters of those surveyed said they expected the nation's economic troubles to continue over the next year, the highest level since 1980. They predict the unemployment rate will jump by one percentage point to 6.0% by year end.

A survey from the Conference Board released Tuesday found that only 13.4% of respondents said they expect their incomes to rise in the next six months, the lowest level since the study began 41 years ago. Their inflation expectation has hit an all-time high.

Consumers' perceptions matter. Their dour view is prompting many to rein in spending and avoid incurring additional debt, with the fewest people planning to buy furniture, appliances and home electronics since the early 1980s, the Michigan survey found. The percent planning to take a vacation in the next six months also hit a record low, according to another recent Conference Board report.

"Consumers are the ones in trouble here," said Paul Ashworth, senior U.S. economist with consulting firm Capital Economics.

Looking at government statistics, however, things don't look that dire, which is one reason why economists are dickering over whether the country is in a recession. Unemployment is at a relatively low 5% and inflation is running at a modest 3.9%. The economy expanded at an estimated 0.6% in the first quarter, weak but still in growth territory.

Most experts are predicting more bad times ahead, but there's still no consensus on whether the economy is facing recession. Federal Reserve officials lowered their expectations for growth, but still kept it in positive territory, according to minutes released last week from a recent board meeting. Moreover, many economists say that if there is a recession, it will be mild and short.

Consumers, on the other hand, don't feel that way. Many are being pummeled by plummeting home values, a weak stock market and soaring grocery and gas costs.

Feeling the pain at all income levels

Hoyt of Economy.com argues that every income strata is feeling it. The wealthy are hurting from the roiling stock market, the middle class from falling home prices and working folks from rising prices.

Food prices, for instance, climbed 5.1% over the past 12 months and April's 0.9% rise was the largest in 18 years, according to the Consumer Price Index. Gas, meanwhile, hit its highest recorded price of $3.937 on Monday, up nearly 21% from a year ago and 9.7% over the past month, according to AAA.

Meanwhile, Americans aren't feeling flush. Home values have plummeted more than 14% in the past year, according to the S&P Case/Shiller Home Price Index, which tracks 20 of the largest markets. That's the sharpest rate in two decades. And wages are basically stagnant, rising only 0.6% between the first quarter of 2000 and the same period this year on an inflation-adjusted basis. Wages have actually fallen behind inflation for the past seven months, according to Jared Bernstein, senior economist at the Economic Policy Institute, a liberal leaning think tank.

"Folks are having considerable difficulty making their personal family budgets given their pay and prices," said Bernstein, who recently wrote Crunch: Why Do I Feel So Squeezed? "The prices they face most commonly in day-to-day life are rising faster than both inflation and their paychecks."

Their investment portfolios aren't doing well, either. The Standard & Poor's 500 index is down nearly 9% over the past year. And the value of Americans' stock and mutual fund holdings fell by $186 billion in the first quarter, the first drop since 2003's bear market.

All this financial stress comes at a time when most Americans have the thinnest savings cushion to fall back on. They have been loading up on debt in recent years, drawing on the equity in their homes, in particular. The percentage of their disposable income that goes toward debt payments is at 14.3%, near the all-time high.

"Consumers need to get their financial house in order," Hoyt said.

Uncertainty hard to deal with

Weighing even more heavily on consumers is uncertainty about where the economy is headed, said Ken Goldstein, economist with The Conference Board. It's unusual to have such slow growth for so many months and Americans don't know how to respond.

"What's really pushing consumers into a funk is the fear of what's coming next," Goldstein said. "You can't be sure you know exactly where we are or where we're going. Consumers are afraid that the light at the end of the tunnel is an oncoming train."

That's exactly how Chris Ackerman feels. He said that he and his wife, who live just outside Seattle, findthat their paychecks no longer cover their rent, student loans and daily living expenses. That is forcing the young couple to turn to their credit cards to make ends meet.

They've already cut out much of their entertainment and trips to visit her family and friends 30 miles away. If gas and grocery prices continue to rise, Ackerman, who works for an importer, said he'll have to stop contributing to his 401(k) plan. He doesn't see many other options.

"The worst part is looking to the future," said Ackerman, 25. "What if everything keeps getting worse. That's the scariest part. Is my grocery bill going to double again? What will we do?" 

NEW YORK (CNNMoney.com) -- It's getting harder and harder to deny that the economy is in recession.

Warren Buffett, the world's most famous investor, proclaimed this weekend that "we are already in a recession."

Former Federal Reserve chairman Alan Greenspan told the Financial Times on Monday that there is a greater than 50% chance of a recession.

But with all due respect to the Oracle of Omaha and the Maestro, they are not telling us anything that the average American consumer didn't already know: this economy stinks.

Whether the economy is technically in recession is missing the point. Consumer confidence is anemic. Home prices continue to fall. The unemployment rate has risen sharply over the past few months. Food and energy prices are soaring.

In fact, gas prices have run up so much that Americans are even starting to give up on their love affair with the automobile: the Federal Highway Transportation reported yesterday that Americans drove 11 billion miles less this March than a year ago.

We may not find out for several months if the National Bureau of Economic Research, the official arbiter of recessions, decides to label this economic rough patch an actual recession. And the economy may not ultimately decline for two consecutive quarters, a shorthand definition.

Gross domestic product eked out a 0.6% gain in the first quarter, according to the first reading of that figure released last month. An update is due out Thursday and economists have a revised forecast of 0.9% growth.

So the most pertinent question now for consumers and investors should not be if we will enter a recession but how long will it last?

Buffett and Greenspan are divided on that question. Buffett, speaking in the German weekly Der Spiegel, said that the recession "will be deeper and longer than what many think" while Greenspan said to the FT that "the probability of a severe recession has come down markedly."

So how can two financial legends have diametrically opposed views on the economic outlook? Well, these are confusing economic times. Even the Federal Reserve seems to be uncertain of what's next.

On the one hand, the credit crunch that paralyzed financial institutions late last year and earlier this year seems to be ebbing.

Wall Street has been responding well to this development: the S&P 500 is up about 7% since mid-March, when investor fears were greatest. That's right around the time that JPMorgan Chase (JPM, Fortune 500) agreed to "rescue" Bear Stearns (BSC, Fortune 500).

And the Fed also seems to think the worst may be over on Wall Street. It has indicated that it probably won't cut further its benchmark federal funds rate, which currently sits at a relatively low 2%.

That should be good news for investors. In a note to clients Tuesday morning, Harris Private Bank chief investment officer Jack Ablin pointed out that since 1984, the S&P 500 has gained, on average, 21.5% in the 12 months following a final Fed rate cut in a cycle. "History suggests that the S&P 500 enjoys strong gains once the Fed puts their interest rate ax away," Ablin wrote.

A sustained upswing in stocks could go a long way toward lifting consumer sentiment, especially since many consumers have seen the value of another key asset, housing, fall in the past few months.

But the central bank is also growing increasingly worried about inflation in food and energy dragging down the economy. The Fed's series of rate cuts have weakened the dollar and some economists suggest that the greenback's sluggishness is the main culprit behind the spike in commodity prices.

Even one of the Fed's policymakers shares that view.

According to the minutes of the Fed's April policy meeting, released last week, Dallas Federal Reserve president Richard Fisher suggested he "was concerned that...lowering the funds rate had been pushing down...the dollar, contributing to higher commodity and import prices, cutting real spending by businesses and households, and therefore ultimately impairing economic activity."

The Fed also updated its economic forecasts for 2008 last week and the picture isn't pretty: the central bank reduced its growth target for the year while also boosting its forecast for both inflation and unemployment.

So which is it? Is the downturn almost over because banks are recovering their footing? Or is the recession only beginning thanks to runaway price increases at the supermarket and pump?

Personally, I think it's an encouraging sign that, despite many economic problems, consumer spending has held up relatively well during the past few months. In addition, the government reported today that new home sales, while still at a historically weak level, rose unexpectedly in April. Any signs of life in the moribund housing market has to be viewed as a positive

And as I've argued in several recent columns, the fact that many big corporations have ample amounts of cash that they are using on mergers as well as to buyback stock and increase dividends is a good thing. Unlike prior recessions, Corporate America may help to keep the economy afloat even if consumers pull back.

NEW YORK (CNNMoney.com) -- When Don Cressman opened his monthly credit card statement, he was shocked to find some exorbitant fees added onto his bill.

"I was charged an over-limit fee when the interest charge kicked my account over my limit," said Cressman, 53. When Cressman called his credit card issuer to complain, they refunded the charge. "I was told that in future I would 'just have to watch my balance,'" he recalled.

Americans hold $850 billion in credit card debt, and the average balance per card-holding household is $8,568, according to the Consumer Federation of America.

Even borrowers who pay their bills on time can fall victim to deceptive practices used by the card issuers and get slammed with rising interest and hidden fees, which have become the industry norm in recent years. Such practices can make it extremely difficult for consumers to ever emerge from credit card debt.

"The issuers have gotten a lot more trigger happy over the last few years," according to Curtis Arnold, founder of CardRatings.com, a consumer advocacy group.

Consumers aren't the only ones who are fed up. Regulators are starting to take notice too. The credit card industry has been under fire lately by various government agencies. The Federal Reserve and members of Congress have proposed new legislation that might force lenders to rein in some of their deceptive billing tactics and make their fees more transparent to customers.

Most credit card holders are well aware that missing a payment can result in a hefty late fee, which ranges from $15 to $39. But meeting a payment deadline isn't always easy. Credit card companies reserve the right to change the date of your deadline with little notice or specify an exact time of day that payment is due. Trying to stay on top of an early morning deadline or due dates that change unexpectedly often leave even the most responsible customers saddled with charges.

Those that have never exceeded their spending limit may also be unaware that going above your credit limit will result in an over-the-limit fee (up to $39) without warning. Like Don Cressman, many consumers who stopped charging when they neared their limit find that the interest rate and additional charges are what pushed their account over the line.

As if the late fees, over-the-limit fees and the interest charges themselves weren't steep enough, there are also a slew of sneaky tactics that credit card companies can use to make sure you keep paying additional charges, even when you pay off your bill.

For example, many banks calculate finance charges using what's called double-cycle billing, a confusing practice that averages out the balance from your previous two bills. So if you carry a balance and pay a finance charge one month, you'll get hit with a finance charge on your next bill as well, even if you've paid off the balance.

Then, there's a practice known as "trailing interest" - another "gotcha" to watch out for, Arnold said. If you send in a payment according to the full amount on your statement, you may find that you still owe a small balance next month. That's because you accrued interest between the time you sent the payment and when it was posted to your account.

And all it takes is one delinquent payment to cause the credit card company to up your interest rate, often substantially. But thanks to a widely-used practice called universal default, you could end up with a higher interest rate, even if you pay on time. Credit card issuers can increase your interest rate - even if you have a perfect payment history - just because you missed a payment on another card or bill.

Because of the scrutiny, some card issuers are beginning to lighten up on their fee structures and billing practices. For example, in spring of 2007 Citigroup announced it would stop using universal default and JPMorgan Chase followed suit in November. But until sweeping legislation is passed, there are a few things consumers can do to avoid getting hit the next time.

For starters, Chris Viale, president and CEO of Cambridge Credit Corp., a nonprofit credit counseling agency based in Agawam, Mass., suggests calling each credit card company to nail down your credit limit, due date and interest rate.

Card-issuing companies, such as American Express (AXP, Fortune 500), Capital One (COF, Fortune 500), Citigroup (C, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) also disclose all of this information either online, under the terms and conditions for each card, or in the account disclosure statement you receive when you first open an account.

The important point is to "get familiar of the terms of each of your cards and get them down on paper," Viale said.

If you are having problems call customer service. "There is so much spotlight on this industry right now [credit card companies] are being a lot more careful about negative publicity," Arnold said, referring to the practices lawmakers like Sen. Christopher Dodd, D-Conn., dub unfair and deceptive. "Use the publicity as leverage."

Many card companies are willing to lower your interest rate, raise your limit or waive a fee as a one-time courtesy if you ask nicely.

"We strongly encourage our customers to engage with us directly" said a representative from CitiCards. "Particularly if they have questions about their card, payments or credit limit."

Once the terms are established, make them work for you. Though the credit card company decides the due date, you can request to change the payment deadline to a time that's more convenient - at the beginning of the month, for example, if you have more cash on hand then.

Then set up online bill pay so your payment gets posted to your account immediately. 

NEW YORK (CNNMoney.com) -- The following minutes from the Federal Reserve's Federal Open Market Committee on April 29-30, 2008 were published on the Federal Reserve web site on May 21, 2008.

The Manager of the System Open Market Account reported on recent developments in foreign exchange markets. There were no open market operations in foreign currencies for the System's account in the period since the previous meeting. The Manager also reported on developments in domestic financial markets and on System open market operations in government securities and federal agency obligations during the period since the previous meeting. By unanimous vote, the Committee ratified these transactions.

By unanimous vote, the Committee extended for one year beginning in mid-December 2008 the reciprocal currency ("swap") arrangements with the Bank of Canada and the Banco de Mexico. The arrangement with the Bank of Canada is in the amount of $2 billion equivalent and that with the Banco de Mexico is in the amount of $3 billion equivalent. Both arrangements are associated with the Federal Reserve's participation in the North American Framework Agreement of 1994. The vote to renew the System's participation in the swap arrangements maturing in December was taken at this meeting because of the provision that each party must provide six months' prior notice of an intention to terminate its participation.

In view of continuing strains in interbank and other financial markets, the Committee took up proposals to expand several of the liquidity arrangements that had been put in place in recent months. Chairman Bernanke indicated his intention to increase the overall size of the Term Auction Facility under delegated authority from the Board of Governors, and he proposed increases in the swap lines with the European Central Bank and Swiss National Bank to help address pressures in short-term dollar funding markets. Meeting participants discussed the possible costs and benefits of a proposed broadening of eligible collateral for the Term Securities Lending Facility (TSLF). On balance, the Committee agreed that expanding the range of eligible collateral for the TSLF might help to increase the effectiveness of the facility and so further promote the orderly functioning of financial markets.

By unanimous votes, the Committee approved the following three resolutions:

The Federal Open Market Committee directs the Federal Reserve Bank of New York to increase the amount available from the System Open Market Account under the existing reciprocal currency arrangement ("swap" arrangement) with the European Central Bank to an amount not to exceed $50 billion. Within that aggregate limit, draws of up to $25 billion are hereby authorized. The current swap arrangement shall be extended until January 30, 2009, unless further extended by the Federal Open Market Committee.

The Federal Open Market Committee directs the Federal Reserve Bank of New York to increase the amount available from the System Open Market Account under the existing reciprocal currency arrangement ("swap" arrangement) with the Swiss National Bank to an amount not to exceed $12 billion. Within that aggregate limit, draws of up to $6 billion are hereby authorized. The current swap arrangement shall be extended until January 30, 2009, unless further extended by the Federal Open Market Committee.

In connection with the Term Securities Lending Facility, the Federal Reserve Bank of New York may accept pledges of AAA-rated asset-backed securities (in addition to the other assets previously authorized by the FOMC) as collateral against loans of U.S. Government securities.

The information reviewed at the April meeting, which included the advance data on the national income and product accounts for the first quarter, indicated that economic growth had remained weak so far this year. Labor market conditions had deteriorated further, and manufacturing activity was soft. Housing activity had continued its sharp descent, and business spending on both structures and equipment had turned down. Consumer spending had grown very slowly, and household sentiment had tumbled further. Core consumer price inflation had slowed in recent months, but overall inflation remained elevated.

Labor demand continued to weaken in March. Private payroll employment fell in March at a rate similar to that in January and February. The reduction in jobs was again widespread, with losses registered at firms in the construction, manufacturing, and professional and business services sectors. Employment at firms in the nonbusiness services sector, which includes health care, continued to rise. Aggregate hours of private production or nonsupervisory workers moved up in March but posted a decline for the first quarter as a whole after having contracted slightly in the first two months of the year. The unemployment rate rose to 5.1 percent in March, significantly above its level a year ago, and the labor force participation rate was little changed.

Although industrial production rose in March, production over the first quarter as a whole was soft, having declined, on average, in January and February. Gains in manufacturing output of consumer and high-tech goods in March were partially offset by a sharp drop in production of motor vehicles and parts and by ongoing weakness in the output of construction-related industries. The output of utilities rebounded in March following a weather-related drop in February, and mining output moved up after exhibiting weakness earlier in the year. The factory utilization rate edged up in March but stayed well below its recent high in the third quarter of 2007.

Real consumer spending expanded slowly in the first quarter. Real outlays on durable goods, including automobiles, were estimated to have declined in March, but expenditures on nondurable goods were thought to have edged up, boosted by a sizable increase in real outlays for gasoline. For the quarter as a whole, however, real expenditures on both durable and nondurable goods declined. Real disposable personal income also grew slowly in the first quarter, restrained by rapidly rising prices for energy and food. The ratio of household wealth to disposable income appeared to have moved down again in the first quarter, damped by the appreciable net decline in broad equity prices over that period and by further reductions in house prices. Measures of consumer sentiment fell sharply in March and April; the April reading of consumer sentiment published in the Reuters/University of Michigan Survey of Consumers was near the low levels posted in the early 1990s.

Residential construction continued its rapid contraction in the first quarter. Single-family housing starts maintained their steep downward trajectory in March, and starts of multifamily homes declined to the lower portion of their recent range. Sales of new single-family homes declined in February to a very low rate and dropped further in March. Even though production cuts by homebuilders helped to reduce the level of inventories at the end of February, the slow pace of sales caused the ratio of unsold new homes to sales to increase further. Sales of existing homes remained weak, on average, in February and March, and the index of pending sales agreements in February suggested continued sluggish activity in coming months. The recent softening in residential housing demand was consistent with reports of tighter credit conditions for both prime and nonprime borrowers.

In the business sector, real spending on equipment and software contracted slightly in the first quarter after having posted a small increase in the fourth quarter. Following declines in both shipments and orders of nondefense capital goods excluding aircraft in January and February, shipments increased in March, but orders were flat. The deteriorating outlook for sales, reduced credit availability, and downbeat readings on business sentiment all pointed to further weakness in capital spending in the near term. Real outlays for nonresidential structures also were estimated to have declined in the first quarter. Indicators suggested that the demand for commercial properties had fallen off substantially from record levels last year, and commercial property prices appeared to be decelerating. Reduced credit availability and less-favorable lending terms had apparently weighed on activity in this sector.

Real investment in nonfarm inventories excluding motor vehicles was estimated to have bounced back to a moderate annual rate in the first quarter, but motor vehicle inventories continued to fall. Some of the drop in motor vehicle stocks was a result of the disruption to production from a labor dispute. The ratio of book-value inventories to sales in the manufacturing and trade sector (excluding motor vehicles) moved up a little, on average, in January and February. Still, outside of categories tied to housing and construction, firms did not appear to be burdened with excess stocks.

The U.S. international trade deficit widened in February. Imports rose sharply, more than offsetting continued robust growth of exports. Most major categories of non-oil imports increased in February, and imports of natural gas, automobiles, and consumer goods surged. Imports of services continued to rise at a robust pace. By contrast, oil imports moved down. Increases in exports in February were concentrated in agricultural goods, automobiles, and industrial supplies, particularly fuels. Exports of capital goods declined for the second consecutive month, with weakness evident across a wide range of products.

Real economic growth in the major advanced foreign economies was estimated to have slowed further in the first quarter and consumer and business sentiment was generally down. In Japan, business sentiment fell significantly and indicators of investment remained weak. In the euro area, growth was estimated to have remained subdued in the first quarter, with Germany and France faring better than Italy and Spain. Growth in the United Kingdom slowed in the first quarter, as credit conditions tightened. Available data for Canada indicated a continued substantial drag from exports in the first quarter, although domestic demand appeared relatively robust. In emerging market economies, economic growth slowed some in the fourth quarter and was estimated to have held about steady in the first quarter. In emerging Asia, real economic growth was estimated to have picked up in the first quarter from a robust pace in the fourth quarter, led by brisk expansions in China and Singapore. Growth in other emerging Asian economies generally remained subdued. The pace of expansion in Latin America likely declined some in the first quarter, largely because the Mexican economy slowed in the wake of softer growth in the United States.

Headline inflation in the United States was elevated in March. Although the increase in food prices slowed in March relative to earlier in the year, energy prices rose sharply. Excluding these categories, core inflation rose at a relatively subdued rate again in March. The core personal consumption expenditures (PCE) price index increased at a somewhat more moderate rate in the first quarter than in the fourth quarter of 2007. Survey measures of households' expectations for year-ahead inflation rose further in early April, but survey measures of longer-term inflation expectations moved relatively little. Average hourly earnings increased in March at a somewhat slower pace than in January and February. This wage measure rose significantly less over the 12 months that ended in March than in the previous 12 months. The employment cost index for hourly compensation continued to rise at a moderate rate in the first quarter.

At its March 18 meeting, the Federal Open Market Committee (FOMC) lowered its target for the federal funds rate 75 basis points, to 2-1/4 percent. In addition, the Board of Governors approved a decrease of 75 basis points in the discount rate, to 2-1/2 percent. The Committee's statement noted that recent information indicated that the outlook for economic activity had weakened further; growth in consumer spending had slowed, and labor markets had softened. It also indicated that financial markets remained under considerable stress, and that the tightening of credit conditions and the deepening of the housing contraction were likely to weigh on economic growth over the next few quarters. Inflation had been elevated, and some indicators of inflation expectations had risen, but the Committee expected inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, the Committee noted that uncertainty about the inflation outlook had increased, and that it would be necessary to continue to monitor inflation developments carefully. The Committee said that its action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. The Committee noted, however, that downside risks to growth remained, and indicated that it would act in a timely manner as needed to promote sustainable economic growth and price stability.

Conditions in U.S. financial markets improved somewhat, on balance, over the intermeeting period, but strains in some short-term funding markets increased. Pressures on bank balance sheets and capital positions appeared to mount further, reflecting additional losses on asset-backed securities and on business and household loans. Against this backdrop, term spreads in interbank funding markets and spreads on commercial paper issued by financial institutions widened significantly. Financial institutions continued to tap the Federal Reserve's credit programs. Primary credit borrowing picked up noticeably after March 16, when the Federal Reserve reduced the spread between the primary credit rate and the target federal funds rate to 25 basis points. Demand for funds from the Term Auction Facility stayed high over the period. In addition, the Primary Dealer Credit Facility drew substantial demand through late March, although the amount outstanding subsequently declined somewhat. Early in the period, historically low interest rates on Treasury bills and on general-collateral Treasury repurchase agreements indicated a considerable demand for safe-haven assets. However, Federal Reserve actions that increased the availability of Treasury securities to the public apparently helped to improve conditions in those markets. In five weekly auctions beginning on March 27, the Term Securities Lending Facility provided a substantial volume of Treasury securities in exchange for less-liquid assets. Yields on short-term Treasury securities and Treasury repurchase agreements moved higher, on balance, following these auctions; nonetheless, "haircuts" applied by lenders on non-Treasury collateral remained elevated, and in some cases increased somewhat, toward the end of the period.

In longer-term credit markets, yields on investment-grade corporate bonds rose, but their spreads relative to Treasury securities decreased a bit from recent multiyear highs. In contrast, yields on speculative-grade issues dropped, and their spreads relative to Treasury yields narrowed significantly. Gross bond issuance by nonfinancial firms was robust in March and the first half of April and included a small amount of issuance by speculative-grade firms. Supported by increases in business and residential real estate loans, commercial bank credit expanded briskly in March despite the report of tighter lending conditions in the Senior Loan Officer Opinion Survey on Bank Lending Practices conducted in April. Part of the strength in commercial and industrial loans was apparently due to increased utilization of existing credit lines, the pricing of which reflects changes in lending policies only with a lag. Some banks surveyed in April reported that they had started to take actions to limit their exposure to home equity lines of credit, draws on which had grown rapidly in recent months. After having tightened considerably in March, conditions in the conforming segment of the residential mortgage market recovered somewhat. Spreads of rates on conforming residential mortgages over those on comparable-maturity Treasury securities decreased, and credit default swap premiums for the government-sponsored enterprises declined substantially. Broad stock price indexes increased markedly over the intermeeting period, mainly in response to earnings reports and announcements of recapitalizations from major financial institutions that evidently lessened investors' concerns about the possibility of severe difficulties materializing at those firms.

Conditions in the money markets of major foreign economies remained strained, particularly in the United Kingdom and the euro area. Term interbank funding spreads rose in these areas, despite steps taken by their central banks to help ease liquidity pressures. Yields on sovereign debt in the advanced foreign economies moved up in a range that was about in line with the increases in comparable Treasury yields in the United States. The trade-weighted foreign exchange value of the dollar against major currencies rose.

M2 expanded briskly again in March, as households continued to seek the relative liquidity and safety of liquid deposits and retail money market mutual funds. The increases in these components were also supported by declines in opportunity costs stemming from monetary policy easing.

Over the intermeeting period, the expected path of monetary policy over the next year as measured by money market futures rates moved up significantly on net, apparently because economic data releases and announcements by large financial firms imparted greater confidence among investors about the prospects for the economy's performance in coming quarters. Futures rates also moved up in response to both the Committee's decision to lower the target for the federal funds rate by 75 basis points at the March 18 meeting, which was a somewhat smaller reduction than market participants had expected, and the Committee's accompanying statement, which reportedly conveyed more concern about inflation than had been anticipated. The subsequent release of the minutes of the March FOMC meeting elicited limited reaction. Consistent with the higher expected path for policy and easing of safe-haven demands, yields on nominal Treasury coupon securities rose substantially over the period, and the Treasury yield curve flattened. Measures of inflation compensation for the next five years derived from yields on inflation-indexed Treasury securities were quite volatile around the time of the March FOMC meeting and on balance increased somewhat over the intermeeting period, although they remained in the lower portion of their range over the past several months. Measures of longer-term inflation compensation declined, returning to around the middle of their recent elevated range.

In the forecast prepared for this meeting, the staff made little change to its projection for the growth of real gross domestic product (GDP) in 2008 and 2009. The available indicators of recent economic activity had come in close to the staff's expectations and had continued to suggest that a substantial softening in economic activity was under way. The staff projection pointed to a contraction of real GDP in the first half of 2008 followed by a modest rise in the second half of this year, aided in part by the fiscal stimulus package. The forecast showed real GDP expanding at a rate somewhat above its potential in 2009, reflecting the impetus from cumulative monetary policy easing, continued strength in net exports, a gradual lessening in financial market strains, and the waning drag from past increases in energy prices. Despite this pickup in the pace of activity, the trajectory of resource utilization anticipated through 2009 implied noticeable slack. The projection for core PCE price inflation in 2008 as a whole was unchanged; it was reduced a bit over the first half of the year to reflect the somewhat lower-than-expected readings of recent core PCE inflation and raised a bit over the second half of the year to incorporate the spillover from larger-than-anticipated increases in prices of crude oil and non-oil imports since the previous FOMC meeting. The forecast of headline PCE inflation in 2008 was revised up in light of the further run-up in energy prices and somewhat higher food price inflation; headline PCE inflation was expected to exceed core PCE price inflation by a considerable margin this year. In view of the projected slack in resource utilization in 2009 and flattening out of oil and other commodity prices, both core and headline PCE price inflation were projected to drop back from their 2008 levels, in line with the staff's previous forecasts.

In conjunction with the FOMC meeting in April, all meeting participants (Federal Reserve Board members and Reserve Bank presidents) provided annual projections for economic growth, the unemployment rate, and inflation for the period 2008 through 2010. The projections are described in the Summary of Economic Projections, which is attached as an addendum to these minutes.

In their discussion of the economic situation and outlook, FOMC participants noted that the data received since the March FOMC meeting, while pointing to continued weakness in economic activity, had been broadly consistent with their expectations. Conditions across a number of financial markets were judged to have improved over the intermeeting period, but financial markets remained fragile and strains in some markets had intensified. Although participants anticipated that further improvement in market conditions would occur only slowly and that some backsliding was possible, the generally better state of financial markets had caused participants to mark down the odds that economic activity could be severely disrupted by a further substantial deterioration in the financial environment. Economic activity was anticipated to be weakest over the next few months, with many participants judging that real GDP was likely to contract slightly in the first half of 2008. GDP growth was expected to begin to recover in the second half of this year, supported by accommodative monetary policy and fiscal stimulus, and to increase further in 2009 and 2010. Views varied about the likely pace and vigor of the recovery through 2009, although all participants projected GDP growth to be at or above trend in 2010. Incoming information on the inflation outlook since the March FOMC meeting had been mixed. Readings on core inflation had improved somewhat, but some of this improvement was thought likely to reflect transitory factors, and energy and other commodity prices had increased further since March. Total PCE inflation was projected to moderate from its current elevated level to between 1-1/2 percent and 2 percent in 2010, although participants stressed that this expected moderation was dependent on food and energy prices flattening out and critically on inflation expectations remaining reasonably well anchored.

Conditions across a number of financial markets had improved since the previous FOMC meeting. Equity prices and yields on Treasury securities had increased, volatility in both equity and debt markets had ebbed somewhat, and a range of credit risk premiums had moved down. Participants noted that the better tone of financial markets had been helped by the apparent willingness and ability of financial institutions to raise new capital. Investors' confidence had probably also been buoyed by corporate earnings reports for the first quarter, which suggested that profit growth outside of the financial sector remained solid, and also by the resolution of the difficulties of a major broker-dealer in mid-March. Moreover, the various liquidity facilities introduced by the Federal Reserve in recent months were thought to have bolstered market liquidity and aided a return to more orderly market functioning. But participants emphasized that financial markets remained under considerable stress, noted that the functioning of many markets remained impaired, and expressed concern that some of the recent recovery in markets could prove fragile. Strains in short-term funding markets had intensified over the intermeeting period, in part reflecting continuing pressures on the liquidity positions of financial institutions. Despite a narrowing of spreads on corporate bonds, credit conditions were seen as remaining tight. The Senior Loan Officer Opinion Survey on Bank Lending Practices conducted in April indicated that banks had tightened lending standards and pricing terms on loans to both businesses and households. Participants stressed that it could take some time for the financial system to return to a more normal footing, and a number of participants were of the view that financial headwinds would probably continue to restrain economic activity through much of next year. Even so, the likelihood that the functioning of the financial system would deteriorate substantially further with significant adverse implications for the economic outlook was judged by participants to have receded somewhat since the March FOMC meeting.

The housing market had continued to weaken since the previous meeting, and participants saw little indication of a bottoming out in either housing activity or prices. Housing starts and the demand for new homes had declined further, house prices in many parts of the country were falling faster than they had towards the end of 2007, and inventories of unsold homes remained quite elevated. A small number of participants reported tentative signs that housing activity in a few areas of the country might be beginning to pick up, and a narrowing of credit risk spreads on AAA indexes of sub-prime mortgages in recent weeks was also noted. Nonetheless, the outlook for the housing market remained bleak, with housing demand likely to be affected by restrictive conditions in mortgage markets, fears that house prices would fall further, and weakening labor markets. The possibility that house prices could decline by more than anticipated, and that the effects of such a decline could be amplified through their impact on financial institutions and financial markets, remained a key source of downside risk to participants' projections for economic growth.

Growth in consumer spending appeared to have slowed to a crawl in recent months and consumer sentiment had fallen sharply. The pressure on households' real incomes from higher energy prices and the erosion of wealth resulting from continuing declines in house prices likely contributed to the deceleration in consumer outlays. Reports from contacts in the banking and financial services sectors indicated that the availability of both consumer credit and home equity lines had tightened considerably further in recent months and that delinquency rates on household credit had continued to drift upwards. Consumer sentiment and spending had also been held down by the softening in labor markets--nonfarm payroll employment had fallen for the third consecutive month in March and the unemployment rate had moved up. The restraint on spending emanating from weakness in labor markets was expected to increase over coming quarters, with participants projecting the unemployment rate to pick up further this year and to remain elevated in 2009.

Consumption spending was likely to be supported in the near term by the fiscal stimulus package, which was expected to boost spending temporarily in the middle of this year. Some participants suggested that the weak economic environment could increase the propensity of households to use their tax rebates to pay down existing debt and so might diminish the impact of the package. However, it was also noted that the tightening in credit availability might mean a significant number of households may be credit constrained and this might increase the proportion of the rebates that is spent. The timing and magnitude of the impact of the stimulus package on GDP was also seen as depending on the extent to which the boost to consumption spending is absorbed by a temporary run-down in firms' inventories or by an increase in imports rather than by an expansion in domestic output.

The outlook for business spending remained decidedly downbeat. Indicators of business sentiment were low, and reports from business contacts suggested that firms were scaling back their capital spending plans. Several participants reported that uncertainty about the economic outlook was leading firms to defer spending projects until prospects for economic activity became clearer. The tightening in the supply of business credit was also seen as holding back investment, with some firms apparently reluctant to reduce their liquidity positions in the current environment. Spending on nonresidential construction projects continued to slow, although the extent of that slowing varied across the country. A few participants reported that the commercial real estate market in some areas remained relatively firm, supported by low vacancy rates.

The strength of U.S. exports remained a notable bright spot. Growth in exports, which had been supported by solid advances in foreign economies and by declines in the foreign exchange value of the dollar, had partially insulated the output and profits of U.S. companies, especially those in the manufacturing sector, from the effects of weakening domestic demand. Several participants voiced concern, however, that the pace of activity in the rest of the world could slow in coming quarters, suggesting that the impetus provided from net exports might well diminish.

The information received on the inflation outlook since the March FOMC meeting had been mixed. Recent readings on core inflation had improved somewhat, although participants noted that some of that improvement probably reflected transitory factors. Moreover, the increase in crude oil prices to record levels, together with rapid increases in food and import prices in recent months, was likely to put upward pressure on inflation over the next few quarters. Prices embedded in futures contracts continued to point to a leveling-off of energy and commodity prices. Although these futures contracts probably remained the best basis for projecting movements in commodity prices, participants emphasized the considerable uncertainty attending the likely path of commodity prices and cautioned that commodity prices in recent years had often advanced more quickly than had been implied by futures contracts. Several participants reported that business contacts had expressed growing concerns about the increase in their input costs and that there were signs that an increasing number of firms were seeking to pass on these higher costs to their customers in the form of higher prices. Other participants noted, however, that the extent of the pass-through of higher energy and food prices to core retail prices appeared relatively limited to date, and that profit margins in the nonfinancial sector remained reasonably high, suggesting that there was some scope for firms to absorb cost increases without raising prices. Available data and anecdotal reports indicated that gains in labor compensation remained moderate, and some participants suggested that wage growth was unlikely to pick up sharply in coming quarters if, as anticipated, labor markets remained relatively soft. However, several participants were of the view that wage inflation tended to lag increases in prices and so may not provide a useful guide to emerging price pressures.

On balance, participants expected the recent increases in oil and food prices to continue to boost overall consumer price inflation in the near term; thereafter, total inflation was projected to moderate, with all participants expecting total PCE inflation of between 1-1/2 percent and 2 percent by 2010. Participants stressed that the expected moderation in inflation was dependent on the continued stability of inflation expectations. A number of participants voiced concern that long-term inflation expectations could drift upwards if headline inflation remained elevated for a protracted period or if the recent substantial policy easing was misinterpreted by the public as suggesting that Committee members had a greater tolerance for inflation than previously thought. The possibility that inflation expectations could increase was viewed as a key upside risk to the inflation outlook. However, participants emphasized that appropriate monetary policy, combined with effective communication of the Committee's commitment to price stability, would mitigate this risk. Participants stressed the difficulty of gauging the appropriate stance of policy in current circumstances. Some participants noted that the level of the federal funds target, especially when compared with the current rate of inflation, was relatively low by historical standards. Even taking account of current financial headwinds, such a low rate could suggest that policy was reasonably accommodative. However, other participants observed that the pronounced strains in banking and financial markets imparted much greater uncertainty to such assessments and meant that measures of the stance of policy based on the real federal funds rate were not likely to provide a reliable guide in the current environment. Several participants expressed the view that the easing in monetary policy since last fall had not as yet led to a loosening in overall financial conditions, but rather had prevented financial conditions from tightening as much as they otherwise would have in response to escalating strains in financial markets. This view suggested that the stimulus from past monetary policy easing would be felt mainly as conditions in financial markets improved.

In the Committee's discussion of monetary policy for the intermeeeting period, most members judged that policy should be eased by 25 basis points at this meeting. Although prospects for economic activity had not deteriorated significantly since the March meeting, the outlook for growth and employment remained weak and slack in resource utilization was likely to increase. An additional easing in policy would help to foster moderate growth over time without impeding a moderation in inflation. Moreover, although the likelihood that economic activity would be severely disrupted by a sharp deterioration in financial markets had apparently receded, most members thought that the risks to economic growth were still skewed to the downside. A reduction in interest rates would help to mitigate those risks. However, most members viewed the decision to reduce interest rates at this meeting as a close call. The substantial easing of monetary policy since last September, the ongoing steps taken by the Federal Reserve to provide liquidity and support market functioning, and the imminent fiscal stimulus would help to support economic activity. Moreover, although downside risks to growth remained, members were also concerned about the upside risks to the inflation outlook, given the continued increases in oil and commodity prices and the fact that some indicators suggested that inflation expectations had risen in recent months. Nonetheless, most members agreed that a further, modest easing in the stance of policy was appropriate to balance better the risks to achieving the Committee's dual objectives of maximum employment and price stability over the medium run.

The Committee agreed that that the statement to be released after the meeting should take note of the substantial policy easing to date and the ongoing measures to foster market liquidity. In light of these significant policy actions, the risks to growth were now thought to be more closely balanced by the risks to inflation. Accordingly, the Committee felt that it was no longer appropriate for the statement to emphasize the downside risks to growth. Given these circumstances, future policy adjustments would depend on the extent to which economic and financial developments affected the medium-term outlook for growth and inflation. In that regard, several members noted that it was unlikely to be appropriate to ease policy in response to information suggesting that the economy was slowing further or even contracting slightly in the near term, unless economic and financial developments indicated a significant weakening of the economic outlook.

At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the System Account in accordance with the following domestic policy directive:

"The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee in the immediate future seeks conditions in reserve markets consistent with reducing the federal funds rate to an average of around 2 percent."

The vote encompassed approval of the statement below to be released at 2:15 p.m.:

"The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2 percent.

Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.

Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.

The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Votes for this action: Messrs. Bernanke, Geithner, Kohn, Kroszner, and Mishkin, Ms. Pianalto, Messrs. Stern and Warsh.

Votes against this action: Messrs. Fisher and Plosser.

Messrs. Fisher and Plosser dissented because they preferred no change in the target federal funds rate at this meeting. Although the economy had been weak, it had evolved roughly as expected since the previous meeting. Stresses in financial markets also had continued, but the Federal Reserve's liquidity facilities were helpful in that regard and the more worrisome development in their view was the outlook for inflation. Rising prices for food, energy, and other commodities; signs of higher inflation expectations; and a negative real federal funds rate raised substantial concerns about the prospects for inflation. Mr. Plosser cited the recent rapid growth of monetary aggregates as additional evidence that the economy had ample liquidity after the aggressive easing of policy to date. Mr. Fisher was concerned that an adverse feedback loop was developing by which lowering the funds rate had been pushing down the exchange value of the dollar, contributing to higher commodity and import prices, cutting real spending by businesses and households, and therefore ultimately impairing economic activity. To help prevent inflation expectations from becoming unhinged, both Messrs. Fisher and Plosser felt the Committee should put additional emphasis on its price stability goal at this point, and they believed that another reduction in the funds rate at this meeting could prove costly over the longer run.

In a joint session of the Federal Open Market Committee and the Board of Governors, meeting participants turned to a discussion of the implications of the payment of interest on reserves for monetary policy implementation. Following passage of the Financial Services Regulatory Relief Act of 2006, which will permit the Federal Reserve to reduce reserve requirements and to pay interest on reserves beginning in 2011, the staff had undertaken work to explore and evaluate alternative approaches to monetary policy implementation using these new authorities. After a staff presentation summarizing the work to date, policymakers discussed the potential advantages and disadvantages of several of the alternative approaches. Considerations included reducing the burden and complexity associated with the current system of reserve requirements and ensuring that the Committee's interest rate targets could be reliably achieved. Participants noted that frameworks for monetary policy implementation employed in other countries span a wide range and that the experiences of these countries provided useful information for the Federal Reserve's consideration of alternative approaches. They agreed that further study was required to narrow the range of options under consideration and that it would be important to consult closely with depository institutions and others in the design of a new system.

It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, June 24-25, 2008.

The meeting adjourned at 1:00 p.m. 

NEW YORK (CNNMoney.com) -- The Federal Reserve sees worse economic problems ahead, according to new forecasts from the central bank released Wednesday.

But even so, the Fed may be reluctant to cut interest rates any further than it already has, the minutes from its last meeting show. (The minutes were also released Wednesday.)

The Fed lowered its economic growth forecast for the year. At the same time, it raised its projections for inflation and unemployment. The combination of slowing growth and rising prices created a difficult situation that made the Fed's latest decision to cut rates on April 30 a "close call."

Stocks, which were trading a bit lower before the release of the minutes, fell even further after the new forecast was revealed. The Dow finished the day with a more than 220 point loss.

The central bank said it now believes full-year economic growth will be between 0.3% and 1.2% this year, significantly below its previous forecast of 1.3% to 2% growth in January.

The Fed said in its minutes that members now expect the economy to shrink in the first half of the year -- the clearest signal yet that Federal Reserve chairman Ben Bernanke and other bankers believe the economy is in a recession.

But some policymakers argued the Fed has cut rates enough already and that the central banks should not lower rates further unless there is evidence of "significant weakening."

The Fed also raised its unemployment forecast for the year to between 5.5% and 5.7%, up from its earlier estimate of 5.2% to 5.5%. The unemployment rate was 5% in April.

In addition, the Fed boosted its projection for inflation. It said it now expects personal consumption expenditures to rise between 3.1% and 3.4% in 2008, a full percentage point more than its earlier expectation.

Even when soaring food and energy prices are stripped out, the Fed expects steeper "core" inflation than its previous estimate.

The Fed cut its federal funds rate, a key short-term rate, by a quarter- percentage point at the end of its last meeting on April 30. According to the minutes, that decision was viewed as a "close call" partly because of rising inflation pressures.

"I think they are stating more clearly that we are in a recession, but the main thing to take away from this is that they're not going to cut any further," said Gus Faucher, director of macroeconomics for Moody's Economy.com.

The Fed' indicated it is expecting a pickup in economic growth in the second half of this year, as the effect of its previous rate cuts and tax rebates to consumers start to impact the economy.

But while it said it expects the economy to recover a bit next year -- forecasts call for growth of 2% to 2.8% in 2009 -- the Fed still sees some weakness lingering into next year.

The central bank now thinks the unemployment rate in 2009 will be between 5.2% and 5.7%, up from an earlier projection of 5% to 5.3%. The Fed said it expects to see "noticeable slack" in the economy next year.

"They're not looking for a deep recession. But they're not expecting a heck of a lot of rebound," said David Wyss, chief economist with Standard & Poor's.

He added that the latest forecast is simply catching up with the consensus view among economists that the nation has already fallen into recession. He warned that the Fed's outlook may deteriorate even further in light of the spike in oil prices in just the past few days.

"Remember, this is their thinking of three weeks ago," Wyss said. "They might have even a different view on inflation and GDP today."

In an effort to keep the country from falling into recession and to deal with the credit crisis, the Fed has cut its key federal funds rate seven times since September. This short-term interest rate is now 2%, down from 5.25% at the start of the Fed's easing campaign,

The federal funds rate is a benchmark for home equity lines of credit, credit cards and other consumer loans as well as the prime rate used for short-term business loans.

Keith Hembre, chief economist at First American Funds, said that it makes sense that the Fed is now paying more attention to inflation pressures.

Some believe the Fed cuts since last September helped fuel inflation, especially the sharp run-up in oil prices, because the rate cuts have led to a weakening of the dollar.

Along those lines, the two Fed members who voted against the last rate cut -- argued during the meeting that the Fed cuts were hurting the economy more than helping it.

Dallas Federal Reserve president Richard Fisher and Philadelphia Federal Reserve president Charles Plosser both contended that the rate cuts have fed inflation and cut into spending by consumers and businesses.

"They believed that another reduction in the funds rate at this meeting could prove costly over the longer run," the Fed said in the minutes.

So Hembre thinks the Fed wants to send the clear signal that it is on hold on interest rates for the foreseeable future.

"They don't want to exacerbate it by the expectation of further rate cuts," he said. 

NEW YORK (CNN) -- Charles and Anna Burge were so certain of retiring to Florida this year that they had begun packing up their house. The dining room of their Long Island, New York home is barren, spare a virtually empty china cabinet and a pile of cardboard boxes that hold its former contents. The couple sold their kitchen table, got rid of chairs, took pictures down from the walls and began sending belongings to their Florida condominium.

'We sold our dining room chairs and now we're sort of living half and half not," said Charles, a superintendent with New York City's Sanitation Department.

The Burges weren't counting on a housing market collapse, a stock market tumble, and an energy squeeze that's sent gasoline prices above $4-a-gallon in their town of Coram, New York.

"Does it make sense to retire now? No. Do I want to retire now? Yes," lamented 53-year old Charles.

Anna was devastated when the couple realized they had to defer their dream.

"I was mad with my husband for two weeks when he came home he said, 'We can't go'. I'm like, 'What do you mean we can't go?'"

"I was crying I just want to go. My son lives in Florida and I like to be close with my son," said Anna.

As the economy stumbles, a growing number of baby boomers are pushing back retirement plans, 27% of workers aged 45 and over, according to a survey released Tuesday by AARP.

Labor Department data back up the poll, showing more middle-aged and older Americans are joining the labor market. During the 12-months ended in April, 915,000 Americans aged 55-64 entered the workforce, and another 389,000 aged 65 and older joined the job market, according to the Bureau of Labor Statistics.

"People are scared," said David Frisch of Frisch Financial Group, the Burge's financial planner, who says he has other clients who are putting off retirement.

"The ultimate question is how long is the market going to be suffering, how much will expenses rise, how long will it take the housing market to come back into play?" said Frisch.

Charles Burge was able to consider retirement in his mid-50's because of the generous pension he's earned from New York City, nearly 2/3'rds of his salary. But selling his home is part of the plan as well. When real estate agents told Charles his home had lost 15% of its value, and could take the better part of a year to sell - even at its reduced price - he began to realize Florida would have to wait.

"I have college to pay for. I have gas to pay for, for three cars," said Charles. "How do you retire when all these things are going out of sight?" The couple's revised plan now is to retire in three years when they hope the real estate market will have recovered. Anna is counting on it, intending to leave her fine china packed away until she can use it in Florida.

"Everything stay in the box," said Anna. "It's too much...aggravation to take everything out of the box again and then start to pack again." 

NEW YORK (CNNMoney.com) -- It's hard to imagine now, but in 1999 gasoline sold for 90 cents a gallon. How'd we get from there to $4 a gallon?

There is no short answer - many things happened, and together they formed a chain of events from cheap gas to $100 tankfuls.

One of the most common reasons cited for the price jump is supply and demand - we are using more oil, which accounts for 70% of the price of gas, and finding less of it.

Why we are finding less oil and using more of it is partly a result of the low prices during the 1990s. Those low prices - partly caused by low gas taxes in the U.S. compared to other developed nations - both encouraged rapid consumption domestically (think SUVs) and underinvestment in new production by the world's oil companies.

By the time 2004 rolled around - and developing economies around the globe roared to life - the world was left in a pinch.

"Our demand has skyrocketed, but our ability to supply that demand has stagnated," said Stephen Schork, publisher of the industry newsletter The Schork Report. Gasoline prices topped $2 a gallon for the first time ever in May of 2004, "and we've been off to the races since then," said Schork.

As demand grew and the supply of oil remained relatively flat, the difference between the amount of oil the world could produce and the amount it consumed narrowed. That meant a supply disruption from one place in the world could not be easily covered with spare oil from another part.

This was illustrated in September 2005, when Hurricane Katrina knocked out a significant chunk of U.S. refining and gasoline prices spiked above $3 a gallon for the first time ever.

"It exposed how little surplus refining capacity we have in the U.S.," said James Crandell, an energy analyst at Lehman Brothers.

A new refinery hasn't been built in the United States in three decades, although capacity at existing refineries has been expanded.

The lack of spare supply has kept other geopolitical events in the forefront for the last few years. Iran and the spat over its nuclear program dominated the news in early 2006, and combined with Israel's invasion of Lebanon in the summer of that year to cause another spike in gas prices to over $3 a gallon.

Geopolitical events need not be shooting wars to attract attention. Analysts say general resource nationalism since 2004 is partly responsible for high oil prices.

In the past few years, Iran's Mahmoud Ahmadinejad, Russia's Vladimir Putin and Venezuela's Hugo Chavez have all become more bellicose on the world stage - in some cases, seeking a bigger share of the profit from foreign oil firms or threatening to cut off oil supplies if attacked.

Some say the Bush administration's provocation of Iran and Venezuela, coupled with a botched occupation of oil-exporting Iraq, has contributed to the geopolitical tension. But defenders say that, in the long run, the administration's actions will eventually lead to a more democratic - and thus stable - global supply.

New supplies of oil from non-OPEC countries were supposed to come online in 2007 and ease some of these supply bottlenecks. But problems in Kazakhstan and Russia - as well as sweeping drilling bans in the United States - mean global consumption is growing twice as fast as non-OPEC production.

Analysts say OPEC, which hold two-thirds of the world's oil reserves but sees a global economy humming along despite $130 oil, has little incentive to increase production.

Strong demand, tight supplies and a volatile marketplace have attracted the interest of investors - the last main contributor to high prices.

"The speculator has seized upon this opportunity," said Schork. "They have recognized there is something fundamentally flawed in this market."

Since 2003, the number of oil contracts exchanged on the NYMEX has more than doubled, said Schork.

Money flowing into oil - and commodities in general - has been especially sharp over the last 6 months as investors look for good returns amid falling stock prices and an inflation hedge against a falling dollar.

That's helped push oil prices to nearly $130 a barrel and gasoline to an average of nearly $3.80 a gallon - smashing previous records even when adjusting for inflation.

Why do you think gas prices are so high? Post a comment.

Whether this investor influx into the oil market is justified is matter of debate. Some see high oil prices as necessary to boost supply and limit demand.

"You can't just point the finger at speculators," Michael Haigh, head of U.S. commodities research at the investment bank Société Générale, recently told CNNMoney.com "Fundamentally, the markets are where they are supposed to be."

Others are less certain.

"The fundamental picture to us doesn't justify the price," said Lehman's Crandell. "It's kind of suggestive of a bubble."

NEW YORK (CNNMoney.com) -- The sick dollar may be getting a little healthier -- but it is far from making a full recovery.

After slipping to record lows against the euro in April, the greenback has recovered in recent weeks, helped in part by expectations that the Federal Reserve's aggressive rate-cutting campaign may have reached a stopping point.

But with the U.S. economy under strain, resistance by foreign central banks to cut interest rates and a massive U.S. trade deficit, a number of currency experts are betting the dollar will stay under pressure at least through the remainder of the year.

"The recent strength we've been seeing is not a turn in the dollar so to speak," said Phyllis Papadavid, a senior currency strategist at Societe Generale in London, adding that the dollar's recent bounce will be short lived because of economic concerns.

To that end, the latest reading on manufacturing activity fell more sharply than expected in April, while retail sales, which drive two thirds of economic activity in the United States, also suffered a decline last month.

At the same time, there has been further fallout in the housing market and unemployment is on the rise.

Even though the weakened dollar has helped boost the nation's exports by making goods manufactured in the United States more attractive to foreign buyers, the nation's current account deficit - which measures trade with the rest of the world - is still massive.

The deficit was a whopping $738.6 billion at the end of last year. While that's down from $811.5 billion in 2006, it's still large enough to be a concern since the current account deficit has to be covered by borrowing from overseas investors.

If these investors pull their money from the U.S., that could result in a cycle of falling stock and bond prices and ultimately a further decline in the value of the dollar.

In addition, foreign central bankers have been reluctant to cut interest rates, which has also helped spur the dollar's weakness. Both the European Central Bank and the Bank of England held interest rates steady last week.

Still, it is understandable why a growing number of experts are betting on a dollar rebound.

Foreign investors, for example, are buying more U.S. securities than they are selling, which help supports the dollar.

According to the most recent Treasury International Capital report, a monthly reading which measures foreign investment flows, net foreign purchases of long-term U.S. securities were $80.4 billion in March, up from net purchases of $64.9 billion in February and $56.7 billion in January.

At the same time, futures markets suggest that if the Fed takes any action in the coming months, it will be a rate hike to keep inflation in check, which would also boost the greenback.

Right now, investors are pricing in a scenario in which the central bank leaves interest rates unchanged at 2% during the summer, and a better than 50-50 chance it will raise rates by a quarter of a percentage point when policymakers rendezvous at the end of October.

What's more, most eligible Americans still have not received their economic stimulus check, which could provide a much-needed shot in the arm to both the U.S. economy and the dollar.

But others say it's uncertain whether the economic stimulus checks will be enough to heal the U.S. economy.

"We don't know if the stimulus checks will be a Band-Aid that will help the U.S. economy recover," said David Watt, a senior currency strategist at RBC Capital in Toronto. "Until we are clear about that, the U.S. dollar will struggle."

Plus, foreign investors are a fickle bunch, and the difference between U.S. interest rates and other foreign central banks makes the dollar less attractive.

"At the end of the day, yields in the U.S. are far below yields [of other central banks]," said Daniel Katzive, a foreign exchange strategist at Credit Suisse.

So it is highly unlikely that the dollar will return to the levels it was at just a year ago, when $1 was worth 1.35 euros or 120 Japanese yen.

In order for the dollar to get back to those levels, experts say the U.S. trade deficit would have to drastically shrink and the Fed would need to aggressively raise interest rates to combat inflation.

"It's probably going to be late 2009 before we get a real strong sustained bounce in the dollar," said Katzive. 

NEW YORK (Money) -- Last week, the federal government began sending out more than $100 billion in "tax rebates" to millions of Americans in an effort to stimulate the sluggish economy.

If you're among the 130 million people who qualify for the rebate, that's great. But you should savor the feeling. Regardless of what happens over the next few months, your taxes have nowhere to go but up in the long-term future.

And if you didn't qualify for the tax rebate because you make too much money (it phased out at an adjusted gross income of $75,000 for singles or $150,000 for married couples) you're even more vulnerable.

A little trip down memory lane can help explain why. You might not remember it - perhaps you blocked it out - but as recently as 1980, the top federal income tax bracket was a mind-numbing 70%, or double today's rate. Even if you were in the middle class, earning $100,000 in today's dollars, you fell in the 49% marginal bracket. Today, if you earn $100,000, you're in the 28% bracket.

That is a monumental cut in taxes over a relatively short period of time. And the same story holds true for taxes on investment income: the maximum rate on long-term capital gains has plunged, from 28% in 1980 to 15% today.

Today's low rates can't last. The tax cuts of the past decades were supposed to lift economic growth (which they did) and hike tax receipts faster than federal spending (which they did not). Not even close. The resulting tsunami of federal debt is one reason to expect your taxes to rise over the next quarter-century.

And then there's the looming retirement of 77 million Baby Boomers. The oldest Boomers have already become eligible for Social Security, and they'll become entitled to Medicare in three years. According to research by the National Center for Policy Analysis, if today's low tax rates remain in place, a staggering 76% of all federal income tax revenue in 2050 will be soaked up by those two programs alone - before a penny is spent on defense, national parks, health care for the poor or haircuts for congressmen.

Clearly, something has to give; it will undoubtedly include today's historically low tax rates. And that has major implications for your retirement savings strategy.

Now, some of you Boomers may be thinking that your income will go down in retirement, so you have no reason to worry about higher taxes. But that's not the case.

Let's say, for instance, that you make $70,000 today, an income that puts you in the 25% marginal tax bracket. Once you're retired, though, you figure you can get by comfortably on 80% of that income, or about $55,000 a year. But if we return to historic tax rates, it won't matter if you're making less - your tax rate in retirement could still go up.

If we return to 1980 rates, for example, your $55,000 income will put you in the 34% marginal tax bracket, or 9 percentage points higher than today. (And that's assuming that a portion of the $55,000 is in the form of Social Security payments, some of which are not taxed.)

All of this means that when you're saving for tomorrow, you must factor in the very real possibility that you'll be in a higher marginal tax bracket when you retire.

That means that you should be saving in vehicles that allow you to pay taxes today, instead of putting them off until tomorrow. The Roth IRA and the new Roth 401(k) are two examples.

In traditional IRA s and 401(k)s, you postpone income taxes on your contributions until you withdraw the money at retirement. With the Roth versions, you pay taxes on the money you put in - now, at today's low tax rates - but pay no taxes on that money (or earnings on that money) in the future when rates will likely be higher.

You can contribute up to $5,000 to a Roth IRA ($6,000 if you're age 50 or older) in 2008. To be eligible, your modified adjusted gross income must be less than $116,000, or $169,000 as a couple filing jointly.

A Roth 401(k), on the other hand, has no income caps - no matter how much you make, if your employer offers it, you can contribute to it. You can contribute up to $15,500 to a Roth 401(k) ($20,500 if you're 50 or older) in 2008. You can also divvy up your 401(k) contributions between the traditional and Roth versions, as long as your total contributions don't exceed the annual limit.

Sure, it's conceivable that tax rates won't go up in the future. But why take that chance? By diversifying and putting some of your savings into Roths, and other money into accounts that let you pay tax up front, you'll at least be hedging your bets.

NEW YORK (CNNMoney.com) -- With gasoline prices hitting record levels, it seems everyone has a tip on how to save fuel. Much of the advice is well-intentioned, but in the end, much of it won't lower your gas bill.

Here's a look at a few misconceptions:

You may have heard that it's best to fill your gas tank in the early morning while the fuel is cold. The theory goes that fluids are more dense at lower temperatures, so a gallon of cold gas actually has more gas molecules than a gallon of warmer gas.

But the temperature of the gasoline as it comes out of the nozzle varies little during the course of the day, according to Consumer Reports, so there's little, if any, benefit, to getting up early to pump gas.

Maintaining your car is important, but a clean air filter isn't going to save you any gas. Modern engines have computer sensors that automatically adjust the fuel-air mixture as an increasingly clogged air filter chokes off the engine's air supply.

While engine power will decrease slightly as the air filter becomes clogged, a lack of performance or an increase in fuel consumption will be negligible, Consumer Reports says.

With prices already over $4.00 a gallon, premium gasoline is a hard sell these days. But a lot of drivers think because their owners' manual recommends premium, they'll get better fuel economy if they stick with it. Really, they're paying more money for nothing.

Even cars for which premium is recommended won't suffer with regular fuel. Modern engine technology comes to the rescue again. When sensors detect regular instead of premium fuel, the system automatically adjusts spark plug timing. The result is a slight reduction in peak horsepower - really, you'll never notice - but no reduction in fuel economy.

Proper tire inflation is important for a number of reasons. Under-inflated tires are bad for handling and can even cause a crash. Improper tire inflation also causes tires to wear out faster and to heat up more, which could trigger a dangerous high-speed blow-out.

According to on-the-road driving tests by both Consumer Reports and auto information site Edmunds.com, underinflated tires reduce fuel economy, so proper inflation is key.

But you should never over-inflate your tires. They'll get you slightly better fuel economy because there will be less tread touching the road, reducing friction. But that means less grip for braking and turning. The added risk of a crash isn't worth the extra mile a gallon you might gain.

There's no question air-conditioning makes extra work for the engine, increasing fuel use. But car air conditioners are much more efficient today than they used to be. In around-town driving, using the A/C will drop fuel economy by about a mile a gallon.

Meanwhile, driving at higher speeds with the windows down greatly increases aerodynamic drag. As speed increases, drag becomes more of an issue, making A/C use the more efficient choice at high speeds.

At most speeds and in most vehicles, A/C use drains slightly more fuel than driving with the windows down, contends David Champion, head of auto testing for Consumer Reports. "My final take on is that it's very close," says Phil Reed, consumer advice editor for Edmunds.com. "It's hard to measure the difference and every vehicle is different."

The best choice - if temperature and humidity allow - is to keep the windows rolled up and to turn the A/C compressor off. You can keep the fans running to blow in air from the outside, but your car will be as aerodynamic as possible while still letting you breathe. You will save gas, but the fuel economy improvement will be slight.

Before you buy a device that's supposed to make your car more fuel-efficient or pour in an allegedly gas-saving additive, ask yourself this: Don't you think oil and car companies aren't doing everything they can to beat their competitors?

If BP (BP) could add something to its gasoline that made cars go farther on a gallon, cars would be lining up at the company's pumps. Sure, people would burn their fuel-saving BP gas more slowly, but then they'd drive right past rivals' gas stations to come back to BP for more. BP stations could even charge more for their gas and still sell tons of the stuff.

So if there really was an additive that made gas burn up more slowly, it wouldn't be sold over the Internet one bottle at a time.

Likewise, car companies are already spending big bucks to increase fuel mileage. If General Motors could make its cars go significantly farther on a gallon simply by putting a device into the fuel line, don't think for a second it wouldn't be doing that. GM's car sales would go through the roof.

"There are a number of these gas-saving devices that are generally useless," says Champion.

But drivers who try them will swear they work. In reality, it's probably an automotive placebo effect, says Reed. Buy one of these devices or additives, and you're like to pay extreme attention to your fuel economy and how you drive.

Of course it can't hurt to keep a close eye on your driving habits -- and what kind of car you drive. In the end, that can make the most difference in saving gas.

Gas prices have climbed to record levels. Are you feeling the pinch? Tell us how gas prices are affecting you and what you're doing to cope. Send us your photos and videos, or email us to share your story. 

NEW YORK (CNNMoney.com) -- These days, more and more people are saying "Charge it."

Finding themselves strapped for cash and unable to use their home as an ATM, Americans are increasingly turning to credit cards to cover gas, groceries and other living expenses.

But many find themselves struggling to pay the burgeoning bills at a time when even the basic needs are growing costlier.

"Other sources of money for a lot of Americans are drying up," said Dick Reed, regional counseling manager of Consumer Credit Counseling Service of Greater Atlanta, who sees more clients with mounting credit card debts these days. "Consumers just don't have a place to go to get money. They are digging themselves into a deeper hole not only to pay for normal living expenses, but to make minimum payments on outstanding debt."

Government and agency statistics illustrate this troubling trend. The Federal Reserve reported Wednesday that Americans' credit card debt jumped 6.7% in the first quarter of this year to $957.2 billion, This spike comes despite the fact that nearly one in three banks is tightening guidelines for credit cards.

In Atlanta, debtors calling the agency in the first quarter of this year had an average of $29,300 in unsecured debt, primarily on credit cards, up from $25,700 in 2007. They spent $335 on groceries and $242 on gas, on average, in April. A year earlier, those outlays averaged only $291 and $181, respectively.

For many people, racking up credit card debt is not a choice they want to make, experts say. Not too long ago, they could have tapped into the equity in their homes through loans or lines of credit or refinancing. But this debt, which usually carries lower interest rates, is no longer as widely available with the collapse of the housing market.

So, faced with soaring costs for food and fuel, people find they must charge more to make ends meet.

"They are not able to increase their income, but their expenses are going up, so the credit card becomes a way to cope," said Sara Gilbert, executive director of the Consumer Credit Counseling Service in Fort Collins, Colo.

Take Lois Eldridge. The Arizona retiree has watched in dismay as her credit card balance doubled to $2,000 over the last few months. Higher gas and grocery prices forced her to charge these essentials for the first time late last year.

She has since drastically reduced her spending on clothing, entertainment and dining out. It's helped, but she says she's still adding about a $100 a month to her balance.

The retired criminology professor also has tried to get a job at a local college in order to supplement her Social Security and savings. But she found would-be employers either paid too little or told her she was overqualified. Her only other options were minimum-wage jobs at local retailers.

"My income has stayed the same, but my expenses are much more than they were last year, even with my attempts to cut back," said Eldridge, 71, who plans to put her federal tax rebate toward her debt. "I'm somewhat overwhelmed that I've had to use credit cards, which I've never had to do before. All I've done in the last four to six months is worry, worry, worry."

Eldridge isn't the only one worrying. Industry analysts say that both credit card balances and delinquencies are on the rise, a sign that a growing number of Americans can't afford their spending habits.

Not surprisingly, those facing the greatest stress tend to be in weak housing markets who are already struggling with their mortgage payments, experts said. Also, as unemployment ticks up and companies cut back on overtime, some people find they don't have enough income to pay the bills.

To be sure, many use their credit cards for convenience and pay their bills on time, sometimes to take advantage of reward programs. But cracks are appearing.

Credit card delinquency rates hit a 4-year high of 4.53% in February, according to Moody's, a debt rating agency.

"Once they've fallen behind, it's increasingly difficult for them to become current on their credit card payments again," said William Black, senior vice president at Moody's. "It's a more challenging economic environment. There's less money to go around."

Meanwhile, card balances have been creeping up steadily since the start of 2006, and jumped nearly 9% during 2007, according to Equifax, a credit data and analysis firm. That's due to a combination of people spending more and paying off less each month, said Myra Hart, senior vice president of analytical services at the firm.

The number of credit cards issued has also risen. At the end of 2007, there were 420 million cards on the market, up 7.6% from a year earlier.

Americans are carrying high levels of debt, compared to historical levels, while their savings rate is quite low, Hart said.

"In the long term, that's not a good thing," she said. "We're really at a tipping point for consumer credit. It depends on what happens to the economy and employment."

Growing balances and delinquencies aren't good for the economy, which is dependent on consumer spending, said Bill Hampel, chief economist at the Credit Union National Association.

"A lot of people will quit going out to dinner if they see their balances rise," Hampel said. "This will hurt the economy."

Are you buried under a pile of debt and need help getting out? Did you recently manage to pull yourself out of debt and want to share your story? Tell us about your experience with debt and how the current credit crisis is affecting you.  

NEW YORK (CNNMoney.com) -- With $120 oil not seeming to follow the fundamental law of supply and demand many are wondering if the market is broken.

The Federal Reserve has been cutting interest rates, saving Wall Street but sinking the dollar and driving up food and fuel prices. Investors, also called "speculators" by some, have been pouring money into commodities of all sorts, artificially driving prices higher in an attempt to squeak out healthy profits in the face of falling stock values.

But to many, all the financial voodoo is merely a distraction. The fundamental reality of oil - and the thing that makes it so attractive to investors in the first place - is that we are using ever more and finding ever less. High prices are necessary if we are to reduce demand, find new oil, and develop alternative technologies.

"The market is starting to send a signal: You got to get your alternative in line," said Robert Kaufmann, director of Boston University's Center for Energy and Environmental Studies. "Societies that ignore this kind of signal do so at their own peril."

Kaufmann isn't promoting the so-called "peak oil" theory - he doesn't think the world is quickly running out of oil.

The problem, he says, is new discoveries of crude in non-OPEC areas like the U.S., the North Sea, and Russia have not kept pace with the oil being removed from those places. OPEC, which holds two thirds of the world's crude oil reserves, has seen no drop in global demand despite $120 oil and has little incentive to increase output.

It's this supply problem that prompted analysts at Goldman Sachs to reaffirm their prediction of a so-called "super spike" in oil prices - which could usher in $200-a-barrel crude in the next 6 to 24 months.

"We believe the current energy crisis may be coming to a head, as a lack of adequate supply growth is becoming apparent," Goldman analysts wrote in a research note Tuesday.

That's the supply-side of the equation. The demand side is a familiar story - developing regions like China, India and the Middle East are using more and more oil. It's not that this wasn't known last year - when oil was half as expensive as it is now - it's just that the world is moving closer to that tipping point where demand will exceed supply.

'It's a finite resource," said Brian Hicks, Co-manager of the Global Resources Fund at U.S. Global Investors, a San Antonio-based mutual fund. "The rest of the world wants to live like we do, and there aren't enough resources to keep everyone happy."

It's become popular to blame speculators - which would include mutual funds, pension funds, some banks, and anyone else who doesn't ultimately take delivery of a barrel of oil - for the run up in price. Congressman have recently spoken of an "orgy of speculation" in the commodities markets, and have held hearings into the matter.

But most analysts say investors are simply looking at these underlying supply and demand trends and buying oil because they see it going up on its own accord.

After all, they can't really be influencing the price of crude, the argument goes, as they generally don't take delivery of the oil and must sell whatever contracts they have at the end of each month. Ultimately, they don't take any oil off the market.

"Nobody at Goldman Sachs wants to see a fuel truck pull up and say "Ok, here's your 60,000 gallons of gasoline,'" said Micheal Cosgrove, president of the commodities brokerage Amerex Brokers, which handles transactions for both banks and end users of oil like refineries. "Ultimately, it's the consumer."

Which is one reason why $120 oil is necessary - to limit demand in a supply-constrained world.

"I think the market is working," said Joseph Stanislaw, an independent energy adviser at the consulting firm Deloitte & Touche. "It forces us to make decisions as induvidual consumers that will change our behavior. It needs to be done."

Government regulators at the Commodity Futures Trading Commission have also said their studies have produced no evidence that oil speculators are significantly driving up the price of crude.

The argument that speculators aren't unduly influencing oil prices is by no means universally accepted.

"I think the market is totally insane," said Fadel Gheit, a senior energy analyst at the investment firm Oppenheimer. "Somebody is playing a game, and we're all paying for it."

Gheit said demand has fallen in developed countries, and there is plenty of energy supply -mostly in the form of natural gas - available right here in the U.S.,if only the oil companies had access to it.

Some analysts and politicians have called for increasing the nations oil production by drilling in areas that are currently off limits - like the Arctic National Wildlife Refuge, sections of the Rocky Mountains and off the east and west coasts.

"If we opened access to gas in this country, we wouldn't need oil in five years," he said.

Both sides in this debate make concessions.

The "market-is-working" types agree that the discovery of oil as an investment class is probably driving up prices somewhat - perhaps by as much as $30 a barrel - although they maintain the long-term price trend would be little changed absent these speculators.

And Gheit agrees that higher prices do provide much-needed incentive to limit demand.

"I've long said maybe the best thing that could happen to this country is to have $6 gasoline," he said.