Lately the Federal Reserve has reached deep into its fiscal policy toolbox to try and mitigate the impact and spread of the current credit crunch. Utilizing cuts in interest rates along with an increase in lending the Fed has now indicated that another financial situation, inflation, may take higher precedence – leaving those seeking access to capital on their own.

Over the past few weeks Bernanke and other Federal officials have indicated that tackling inflation will be brought front and center, and addressing the current economic slowdown will take a backseat. "The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so," Bernanke said this week at a conference in Boston. "The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations."

The switch in the Feds fiscal policy comes after a long period of interest-rate cuts and tax-rebate checks, which Bernanke believes are adequate solutions in curtailing the impacts of the subprime mortgage and housing fallouts. However, others feel that these are temporary fixes – analogous to putting a band-aid on a leaky dam that is about to explode.

Lena Komileva, an economist with Tullett Prebon, wrote "The immediate effect from this dramatic shift in policy priorities has been to 'drain' visibility, confidence and liquidity from financial markets." Komileva continued on "With monetary policy adopting the role of a risk-driver rather than a source of relief for financial markets, current conditions are actually worse than they were last August when the credit crunch erupted."

Despite Bernanke's optimistic outlook, there are a number of indicators that suggest the economic slowdown may still require more attention. One lies in the fact that the May 2008 unemployment rate posted its biggest jump in 22 years from 5 percent to 5.5 percent. Historically, the trend for such a jump in the unemployment rate has resulted in banks pulling back on lending to consumers and businesses for fear of loan defaults.

So why is the Fed bent on addressing inflation? The past nine months of cutting interest rates and lending freely to financial firms was a bid to prevent the financial system from seizing up. Basically the Fed was concerned with staving off economic calamity, but the economy remains weak and appears to be getting weaker: Unemployment is rising, and home prices are falling at a record rate.

So for now, the Fed simply wants to keep rates steady to help combat a plunging American Dollar. Putting rates on hold serves as an important step in fighting inflation and almost certainly indicates that the next step will be a rise in interest rates. Doing so could maintain stability in the dollar and help arrest the rise in food and energy prices that have punished U.S. consumers and small-business owners already pressured by slow wage growth, falling house prices and stagnant job creation.

Historically, small business has been the catalyst that gets the economy back on the right track during slow times. Improved lending practices can only help an economy that keeps faltering, which is why NSBA believes that only through addressing the credit crunch and providing small businesses access to capital can the US economy fully recover.