The fed should come out with a surprise 1/4% rate hike *NOW* to slam commodity prices & surpress inflation. The 1/4% isn't that large anyway. It will hurt nothing, but WILL stop the runaway commodities. If the commodity inflation is allowed to go on until the end of 2008, our inflation that flows thru the commodities into the end user products and finally onto store shelves will be devastating by the time the holiday shopping season comes & thru 2009. NOW is the time for action. Who agrees?
I think that is a good idea, but in the real world the fed is bailing out the banks. Their policy therefore is inflation.
Inflation is ridiculous as it is, and then to further rub our faces in it, the government data says there ain't no inflation... It's just one lie after the next... But with all this ridiculous inflation, why are 30 year bonds trading at 4%? Something is clearly wrong here...Or are things really that scary?? 5 years of reckless Fed policy is a major chop to the dollar, and it may take a long time to recover. I have a long-term target of 51.55 for the Dollar Index...by aroiund 2012... Short term - anything can happen.. but long term, the DX can only go down...
The only time the federal reserve steps in is when they need to prop the market up like they have for the last year, lowering rates and injecting liquidity. Other than that they could care less about a falling dollar, high inflation and soaring commodity prices. If anyone thinks inflation is under control your foolish, inflation is running wild and the only way to control is to raise rates which they wont because the consumer is already hurting and tapped out, welcome the recession because thats what this economy is in at this very moment.
Nothing the Fed can do will affect commodity inflation. It is a demand story, led by China. Domestic sectors that are rate sensitive, eg real estate, are in the toilet. The Fed cannot enact a national energy policy either. Raising rates might have a short-term positive effect on the dollar, but since such action would throw the economy into a deep recession, it might be long term negative for the dollar.
total agreement.... at this point, the dollar is the straw that may or may not break the camels back.
what makes you so sure that a 25bp increase would definitely stop commodities price inflation?? any impact might last 3-4 days. it's gonna take 300 bp or more to do anything meaningful. if a 25bp change had any impact on financial markets, the fed would have stopped lowering rates last autumn. a small increase is completely useless
Anyone remember the housing market bull run? Everyone said that was all about a supply shortage, too. Now look at it, vacant houses all over. My opinion is that commodities are the next bubble to burst in a year or 3. With R.E. on the rocks and a lackluster stock and bond market, big money has been poured into commods. Where else do you put your big money? Sector rotation on a macro scale. When that run is over and the credit markets start to function correctly (they are still seized up) then R.E. will recover along with stocks and then commods will tank 3 times as fast as they rose. Quoting Peter Lynch, the best fund manager in history, period: "Prices will ALWAYS return to the Mean Average at some point".
commodity prices won't deflate until after the the war in iraq and afghanistan are over, that's a fact, Jack. BRICs just add fuel to the fire. The historical correlation between war and commodity prices has been proven over, say, the last 500 years. We can't blame everything on Goldman Sachs. Ask yourself, "would I have made money had I been long commodities since 2002-2003 timeframe??"