Aug. 5--Call it the "W" economy--but that doesn't stand for "winning."

It could stand for "wincing," or the Federal Reserve's reaction as it holds an important meeting Tuesday to confront a nasty combination of inflation and slowing economic growth at a time when consumers are hurting.

In fact, the "W" is how some experts describe the unpleasant shape of the economy.

Imagine writing the letter "W": Your first stroke down is the route the economy was on until tax rebates stimulated consumer spending and provided an upswing.

The next move, however, is expected to be an unpleasant slope downward.

"In the fourth quarter, we expect a 1.5 percent decline in real consumption, holding GDP flat," said Goldman Sachs economist Jan Hatzius. "The economy is likely to remain stagnant in the first quarter of 2009."

That means more danger that people will lose jobs.

The unemployment rate has been climbing and is now at 5.7 percent. Merrill Lynch economist David Rosenberg said that with businesses facing higher costs at the same time of sluggish demand, "businesses are going to be forced to step up their layoffs to protect their margins. Employment-search firms already see this coming because temp agency jobs were cut 29,000 in July, and this came on top of an 88,000 slice in the prior three months."

Of course, at some point the final upswing in the "W" will occur as the economy mends. BlackRock co-head of fixed income, Peter Fisher says that point might be a year away.

But now economists say the forces pulling at the economy are still in their early stages. Monday the Commerce Department released disappointing numbers on personal income and spending. Even with rebates, consumer spending increased by 0.6 percent in June and personal income was up a mere 0.1 percent, while prices rose 0.8 percent, the most since September 2005.

"When you look at real consumer spending net of medical care, food and utilities, what you see is that it contracted 0.3 percent at an annual rate in both the fourth quarter of 2007 and first quarter of 2008," said Rosenberg. "This has never happened before outside of classic recessions."

Economists believe the weak conditions will push the Federal Reserve into deliberate inaction at the end of Tuesday's meeting. Experts expect the central bank to hold the benchmark for interest rates at the current 2 percent. While the Fed might want to raise rates to try to tame the inflationary pressures that are tugging at both household and corporate budgets, economists say the greater threat now is a slowing economy and a weakening consumer.

Despite the gloomy attitude consumers have shown in surveys, Fisher says Americans have not begun to digest the financial constraints that will eventually hold them back from spending.

"People aren't always borrowing money," and they will discover the impact of the credit crunch when they do, he said.