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deterioration in financial markets from extent of adjustments down the road are most spilling over to the production and job likely to be larger, if not sharper, making the markets. While the latter might have been prospects even less sanguine for strong accomplished with just a more modest drop in economic growth in the intermediate term in the fed funds rate, the low rate (stopping at 2 lieu of these policy events. percent in April 2008, down from 5.25 percent initially) seemingly spawned a The markets for crude oil and transportation depreciation of the dollar in both foreign fuels continue to be very perplexing, exchange markets and commodity markets as notwithstanding the price drops since late a harbinger of excessive inflationary July. The macroeconomic outlook continues pressures. Of course, the leading commodity to ramp-up the forecasts for crude, and being crude oil with potent consequences for concomitantly for gasoline and diesel, in what U.S. consumers and businesses as we have has been an all too customary under seen. A weaker dollar only makes our prediction of prices. Presently, crude is domestic inflation worse and monetary policy expected to remain well in excess of $100 more challenging, since imports -particularly barrel, in contrast to the outlook from oil imports -take more dollars to acquire than December 2007 being in the $75 range. A before. Clearly, monetary policy has had to silver lining in this revised forecast is, shift from viewing inflation as the leading risk however, for prices to remain reasonably flat to economic health to shoring up employment going forward out to 2015, with the caveat and incomes in the very near-term. that geopolitical events pose the most risk to this outlook. The drag on consumer and Fortunately, in this particular circumstance business spending -both domestically and the Fed will not be operating in a vacuum. abroad - poses a major concern for economic Foreign economies -most notably Europe, growth, as well as a reduction in travel Japan, and Canada (comprising a considerable demands and transportation fuel consumption. portion of our trading partners) are weakening appreciably under higher interest rates and Table 1 on page 5 summarizes several strong currencies. Lower interest rates in national economic indicators. The those economies may be in store soon. This transportation revenue forecast is consistent should give additional strength to the dollar, with the Department of Administrative and help cool off import inflation due to Services' June 2008 Oregon Economic ~ cheaper goods in dollars from abroad. Should Revenue Forecast and the associated baseline the dollar not appreciate measurably and the macroeconomic forecast from Global Insight Fed keep rates too low for very much longer, Inc. (GII). Further discussion of the national it will fall behind the curve and the bond economic outlook is relegated to an appendix markets will become the policy makers de for the interested reader. In addition, a jure.l Without both a slight nudge soon in detailed treatment of the national and state short-term interest rates (post election economic outlooks is available at the web site ostensibly) and continued strengthening of the of the Office of Economic Analysis dollar, the adjustments necessary are only (http://www.oea.das.state.or.us). being deferred, not avoided. Moreover, the 1 Currently, the "target" rate on fed funds appears to be consistent with about 6 - 8 percent inflation in the personal consumption spending index, very substantially above the traditional policy goal of no more than two percent. 2