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The Times: Consensus Says I R At Fed To Keep Going Up

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The Times April 17, 2006

Economic view

Bernanke should ignore market bluster


THE sudden surge of commodity and gold prices during the past few weeks has raised a troubling question for investors and businessmen around the world. Will Ben Bernanke, the new Chairman of the US Federal Reserve Board, have to prove his credibility by getting this speculation under control? And to do this, will he have to raise American interest rates far above the 5 per cent or 5.25 per cent peak that is currently discounted in bond and stock markets around the world? To judge by the collapse in bond prices and the recent nervousness in many financial markets, investors and business are starting to worry that this is precisely what the Fed Chairman will have to do.
If Iran closed the Strait of Hormuz, blocking 40 per cent of the world’s oil trade, oil and gold prices would explode. However, the consequent collapse in global economic activity would be extremely bearish, not bullish, for the price of copper and other industrial commodities.
It seems, then, that there is only one convincing reason why Bernanke might tighten beyond 5 per cent or 5.25 per cent. It may turn out that 5.25 per cent is simply not high enough to slow the American economy to below trend growth. This is what many economists and investors now believe.
Consensus forecasts are now being adjusted upwards instead of downwards (as the Fed would prefer

TTRTRates at home soon. Gold may not be the safe haven we all thought given the possibility of a world wide crash brought on by soaring oil prices? Cash still looks best in the short to medium term?

Edited by Realistbear

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He also says this:

The Fed is convinced that commodity prices are now in a Nasdaq-type bubble, but that does not necessarily imply that American monetary policy will be tightened as aggressively as many investors are starting to expect. The view in Washington is that commodities and gold are a small and esoteric asset class, not important enough in their share of American consumption to cause major inflationary pressures and not significant enough in financial markets to trigger major dislocations, whether they continue to rise or suddenly collapse. For the Fed to tighten in response to soaring copper or gold prices, would be a classic case of the tail wagging the dog.

Ahh, good old Anatole.

Not content with telling us that house price rises are a good thing, now he's trying to tell us that commodity price rises are completely insignificant.

So let's get this straight. House prices will rise forever underpinned by monetory expansion and borrowing, and whatever happens to commodities won't matter because we're so rich from our properties that we can afford to pay double the amount for our petrol, gas and electricity.

This bloke cracks me up!

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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