Given the deteriorating state of the economy, it has been easy to point a finger at Fed officials – past and present. And although the Philly Fed manufacturing index relayed more bad news yesterday, the Fed could actually be on time here.

Barring an unlikely CPI aberration, the Fed got all the cause it needs to cut rates three quarters of a point at its next meeting on January 30th, or in a combination before. A declining PPI, after a high reading last month, is a sight for sore eyes as the Fed has been looking wearily at a slowing economy with rising inflation. Futures point towards a fifty-fifty chance between a 50 basis point and 75 basis point cut. With inflation looking tame, and given some of the FOMC members comments this past week, it's likely that (some) relief is on its way.

The recent PPI data that showed a 3.2% (highest in 35 years) monthly increase in wholesale prices, and a 0.8% rise in the CPI, brings about a conundrum reminiscent of the so called double dip recession we saw in the early 1980s. Eerie similarities from that time period are popping up every day: record oil prices, a weak consumer, and a limping housing market, all lead to a higher likelihood of recession in 2008 than most economists are letting on – note the terrible accuracy of recession predictions in the past.

The collective environment seems to be inviting back stagflation, or the rising of inflation sans economic growth. GDP growth is already creeping down, and with new accelerated inflation readings coming out, Ben Bernanke and the Fed are likely to be soon waving helplessly as the economy sinks.