Punch in The Eye

A rising trade deficit and faster inflation threaten the expansion

The bad news hit the financial markets last week like a right cross from Heavyweight Champ Mike Tyson. An unexpected rise in the U.S. trade deficit ! knocked down the dollar against foreign currencies and sent the U.S. stock and bond markets reeling. Combined with an alarming surge in producer prices, the disappointing trade figure for February increased the odds that the Federal Reserve Board might feel compelled to raise interest rates to stabilize prices and defend the dollar. With that, the threat of a downturn -- and another stock-market crisis -- loomed once again.

Things had looked quite different early...

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