The economy is listing as the bear market undermines the recovery's foundation. Spooked investors have driven stocks lower by some 23 percent this year. Treasury bond yields are down to their lowest level in four decades.

Still, Alan Greenspan and his colleagues at the Fed decided to stay the course. The odds makers at the Fed are betting that consumers will remain the economy's stalwart supporters. Productivity growth is strong, too, and corporate profits are on the rebound. A majority of economists in a National Association of Business Economists survey agree with the Fed. They don't believe the economy will drop back into the oft-dreaded but rarely seen "double-dip" recession.

It's a reasonable gamble for the Fed to take. For one thing, caution is a sensible strategy in view of how often the manic moods on Wall Street drive values and opinions to extremes. For another, America's lender-of-last-resort is smart to keep its financial flexibility intact considering the very real threat of a sudden market panic. There is an additional reason for the Fed to keep its monetary powder dry: The prospect of war with Iraq.

The Bush Administration's saber rattling is unsettling investors. The Administration has repeatedly vowed to remove the ghastly dictator Saddam Hussein from power. To be sure, the Administration says nothing has been decided. That's probably true, and in recent days there has been some intriguing maneuvers by high-level Republicans to slow the move toward a pre-emptive military strike. Yet much of official Washington still believes the only question is when to strike Iraq, not whether to launch an attack.

The uncertainties surrounding an invasion of Iraq are legion. How high would oil prices go? Will an attack on Iraq spark a revolt in Saudi Arabia and other Arab countries? Will Iraq use weapons of mass destruction against Israel? Will the U.S. succeed in creating a viable new regime in Baghdad?

A military campaign could hammer the U.S. economy and markets. Oil prices will spike higher. Consumers will delay spending on big-ticket items such as homes and cars. Business will hold off on any major investments. Travel plans will be cancelled. Now, war isn't always bad for the economy over time, at least measured by the cold calculus of gross domestic product. Military spending on bullets, tanks, high-tech weaponry, and other defense goods and services can boost activity over time.

Look, war is always horrible. But Saddam Hussein is a monster. The Administration has yet to make an airtight case to the American public and allies that there is no alternative to military action. While the Administration makes its brief, and until the outcome of the current shadow war with Hussein is clear, it pays for every household and business to factor the risk of military action into their planning.

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