Inflation rates—a general increase in prices--are very low. With Fed officials talking openly about low inflation and the risk of deflation, it is appropriate to examine inflation risk and how to address it. High levels of inflation erode purchasing power and the value of stocks and bonds. This week we review aspects of inflation. The
I fondly remember “the good old days,” when government actually worked much of the time, when a conciliatory spirit was a badge of honor, and tough issues were resolved thoughtfully and with civility. Howard Baker, Tennessee Senator from 1967 until 1985, exemplifies a leader who set the tone for those times. In his day he
The way Congress goes about its business is maddening, counter-productive, and basically, a drag on the economy. This week we examine the partial government shutdown and its ramifications.
As St. Augustine spoke of the need for restraint, so also the Fed has spoken of its need to begin restraining its large scale asset purchase program. Though the initial bond-buying program may have helped stimulate demand in 2010 and 2011, keeping it going is now doing very little to stimulate economic growth and employment. In its announcement September 18 the Fed showed that it was as reluctant as the great Saint to implement restraint by tapering the size of its asset purchases; its message was “not yet”. Critics of the Fed believe the Fed’s unconventional program creates economic imbalances, stokes inflation, and provides markets a short-term, unsustainable “sugar high”. The unconventional program will continue, at least for a while. Markets were positively surprised by the announcement.
Is the Fed’s policy of quantitative easing effective? This question is particularly relevant as the Federal Reserve meets September 17-18 to discuss tapering of its large scale asset purchase program. That conversation has caused markets to convulse this summer.
Labor Day is behind us and fall—usually a volatile period-- is before us. The last weeks of August showed signs of optimism for the economy and as well as a rise in tensions in the Middle East.
Sometimes good news is greeted poorly by the market. Last week the number of claims for jobless benefits dropped to the lowest level since October 2007. Consumer confidence also moved near a five-year high. However, the stock market dropped, and the yield on the benchmark 10-year Treasury note, which moves inversely to prices, climbed. Concerns that the Federal Reserve will taper asset purchases beginning as early as September have stoked a selling spree.
Stock and bond markets are recovering from the spasms felt May 22 to June 24. This week we take a close look at what just happened; review a provocative article on why bond yields may drop further; and re-state the case for investing in Emerging Markets, which have not rallied at the same pace as
Last Wednesday, Federal Reserve Chairman Bernanke delivered testimony to Congress, taking great pains to clarify Fed policy. His comments were well received because stocks moved higher and interest rates retreated. Our first article examines what the Chairman said and what he really meant. Though the economy still may need Fed support to reach “escape velocity” (i.e., where it can grow by its own momentum), our next article by Liz Ann Sonders of Schwab takes a look at the plunging Federal budget deficit and what it means. Finally, we summarize a recent poll by the Institute of Chartered Financial Analysts about expectations over the next 12 months.
This week we examine the topic of financial repression, the term to describe the deliberate action of government to hold down interest rates below inflation. It represents a tax on savers and transfers benefits to government and other borrowers that would otherwise be spent elsewhere.