Is the U.S. risking stagflation in 2008 due to crisis talk and the huge injection of available money from the Fed?

What does the coming year hold for the economy? BloggingStocks' Peter Cohan considers five issues that will factor heavily in 2008.

Stagflation -- high inflation coupled with weak growth -- is a risk. The latest inflation statistics suggest that inflation is running at a 4.2% annual rate. That's way above the 1% to 2% range that then Fed targets. And by cutting rates, the Fed is contributing to inflation. Energy, food, metals, and other commodity prices are rising due to demand from China and India. But the Fed contributes to the price increases because oil prices are denominated in dollars. When the Fed cuts rates, the value of the dollar drops and the price of oil rises, so inflation is certainly going to rise.

The question remains whether the economy will slow down or whether the stimulus from lower rates will keep it growing. My hunch is that the key to economic growth will be the availability of credit for consumers and businesses. As long as U.S. businesses can get enough capital to keep growing and meeting demand from China and India, they will keep people employed. The weaker dollar actually helps the competitiveness of these U.S. exporters since their goods are cheaper in the international markets compared to those of European manufacturers, whose prices are denominated in more valuable euros.

And as long as people remain employed, they will be able to use their credit cards to keep buying things.