Will the Fed try to hide evidence and the consequences of the greatest monetary inflation of all time?
*The Wall Street Journal, by Greg Ip & Sudeep Reddy, June 10, 2008:
"Mr. Bernanke said the likelihood of a serious recession has fallen.
'Although activity during the current quarter is likely to be weak, the
risk that the economy has entered a substantial downturn appears to
have diminished over the past month or so,' he said.
While he argued that the effects of low interest rates, improving
market conditions and a slow easing of problems in the housing market
should help the economy later this year, the threat from declining home
prices and high energy prices mean 'that growth risks remain to the
downside.'
That comment suggests the Fed is unlikely to raise interest rates in
the foreseeable future. But Mr. Bernanke didn't eliminate the
possibility altogether, turning his concern about inflation up a notch
from remarks last week, in the wake of a big jump in oil and gasoline
prices. 'The latest round of increases in energy prices has added to
the upside risks to inflation and inflation expectations,' he said. The
Fed 'will strongly resist an erosion of longer-term inflation
expectations, as an unanchoring of those expectations would be
destabilizing for growth as well as for inflation.'
The broader text of his remarks, which dealt largely with academic
challenges in the study of inflation, suggest Mr. Bernanke doesn't yet
see the evidence of rising inflation expectations and a wage-price
spiral that would require an imminent tightening of monetary policy. He
said rising raw material costs had yet to pass through more broadly to
underlying labor costs, 'in part because of softening domestic demand.
However, the continuation of this pattern is not guaranteed and future
developments in this regard will bear close attention.'
Mr. Bernanke defended the use of futures markets to forecast future
energy cost, even though those markets have underestimated the future
cost of energy. 'I do not think it is reasonable, when forecasting
commodity prices, to ignore the substantial amounts of information
about supply and demand conditions that are aggregated by futures
markets.'
Meanwhile, in his speech in New York, Mr. Geithner said soaring demand
for energy and resulting price increases are pressuring economies in a
way that ultimately may push interest rates higher around the world.
'Containing the risks in what is globally a less benign inflation
environment is going to probably require tighter monetary policy on
average around the world,' Mr. Geithner said in response to a question
at the Economic Club of New York.
In the U.S., Mr. Geithner said, the Fed has lowered rates to provide
insurance against a deeper economic slowdown 'without taking too much
risk that underlying inflation is going to accelerate over time.'
He said the Fed doesn't see evidence of 'a significant acceleration of
underlying inflation' in goods and services or wages, nor is there a
'substantial erosion' in the public's expectations for inflation long
term."
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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