Wednesday, Jun 14, 2006

Markets anxious that bad US inflation figures will lead the Federal Reserve to push interest rates up sharply

TimesOnline: Markets dive again as gloom envelops the globe

Markets are concerned that on the back of potential poor US inflation figures the US Federal Reserve may push rates up sharply jeopardising future US growth.
Richard Bernstein, chief investment strategist at Merrill Lynch said, What amazes me is peoples confidence in the Fed, that they will get it right. The Fed has never gotten a [rate] tightening cycle right. Bernstein also pointed out that the renewed "inversion" of the US yield curve with rates on short-term rates now higher than ten-year Treasury bonds. This normally indicates that recession follows between 2-8 months later.
Now from my understanding if the Fed have to keep raising rates to control inflation at the expensive of growth then surely "stagflation" must be a serious issue.

Posted by denzil @ 09:14 AM (514 views)
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4 Comments

1. Tensecs said...

will a sell off lead to a glut of money looking for a home? also will it be inflationary? (hurting any hard earned deposits).

i recognise that falls mean a loss of (paper) wealth for sellers and non-sellers, and as i write i figure for every seller theres a buyer - but is there anything "in" my question?

Wednesday, June 14, 2006 09:58AM Report Comment
 

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3. Thisgent said...

Tensecs,

Most of the US economy is built on debt, not hard cash. For this reason if there is a selloff, the 'money' will evaporate into nothing. But confidence will be hurt severely, resulting in people rushing to pay off their debts and thus causing a recession as spending falls. Asia no longer gets large trade surpluses from their exports to the US, meaning that they no longer need to buy US government bonds to keep their currencies form strengthening, resulting in higher borrowing costs for the government....

It all goes round and round. For the last 25 years there has been a US government and consumer spending boom that is stopping as we speak. It was one big spiral up, and now it will be one big spiral all the way back down again.

Get ready for the Depression... Life as we know it is about to change forever.

Wednesday, June 14, 2006 12:08PM Report Comment
 

4. denzil said...

For those that have the time, bandwidth and a way to play an audio file (mp3, media player, realplayer) take a listen to "2nd Hour Roundtable, New Era or The Perfect Financial Storm?" at: http://www.netcastdaily.com/fsnewshour.htm

It's interesting listening and pretty much provides a lead up from 2000 to the point the markets are at today.

Wednesday, June 14, 2006 03:09PM Report Comment
 

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