Will wealth denominated in dollars devalue faster as prices increase at a greater rate?
*Financial Times, by Michael Mackenzie, September 17, 2012
US inflation fears rise after QE3
”The surge in expectations of future inflation has been accompanied by a weaker dollar, higher gold and oil prices as investors view QE as heightening the risk of rising consumer prices in the future.
Unlike prior episodes of QE in late 2008 and 2010 when inflation break-evens were much lower and suggesting the spectre of deflation, the Fed is deploying QE3 in order to boost employment. The central bank is also keeping bond purchases open-ended and has extended its guidance for maintaining low rates into 2015.
That has sparked concern among investors that the central bank is prepared to tolerate a much higher inflation rate in the future, propelling the pronounced rise in break-evens over recent days.
‘Break-even inflation rates do appear to be moving upwards in a structural way, after the potential regime change at the Fed,’ said Michael Pond, strategist at Barclays. ‘The Fed is more focused on reducing unemployment and is prepared to tolerate higher inflation.’ ”
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