http://www.investmentpostcards.com/2010/03/03/dissent-and-disagreements-at-future-fomc-meetings/ Prieur du Plessis’s international investment blog Sun, 29 Jan 2012 22:06:48 +0000 hourly 1 http://wordpress.org/?v=3.1.1 http://www.investmentpostcards.com/2010/03/03/dissent-and-disagreements-at-future-fomc-meetings/comment-page-1/#comment-24959 Frank W Sat, 06 Mar 2010 03:42:22 +0000 http://www.investmentpostcards.com/?p=17255#comment-24959 The other day Casey wrote a blurb about Taylor's Rule and its implications for the Federal Funds Rate at the present time. According to the traditional version of this Rule, Casey finds that the present Federal Funds Rate should be 4% not 0%-0.25%. These kinds of things do not underpin the belief that visible inflation will continue to remain low for an extended period in the US economy. The other day Casey wrote a blurb about Taylor’s Rule and its implications for the Federal Funds Rate at the present time. According to the traditional version of this Rule, Casey finds that the present Federal Funds Rate should be 4% not 0%-0.25%. These kinds of things do not underpin the belief that visible inflation will continue to remain low for an extended period in the US economy.

]]> http://www.investmentpostcards.com/2010/03/03/dissent-and-disagreements-at-future-fomc-meetings/comment-page-1/#comment-24907 Frank W Thu, 04 Mar 2010 00:11:05 +0000 http://www.investmentpostcards.com/?p=17255#comment-24907 Yes, everything is hunky-dory on the inflation front with the Consumer Price Index at the present time. However, the present time is not the worry. The worry is what is looming ahead. I have had advice that the Producer Price index is running at 4.6%. Generally speaking, the PPI is what drives the CPI. Of course, with the economy in poor shape with high unemployment and not much scope for wage increases, it is difficult for businesses to pass PPI increases thru to the CPI. But, if the PPI keeps growing like this, it is only a matter of time before retail prices start going up and we get visible inflation. After all, companies are not in business to lose money. No wonder certain members of the Fed are getting edgy and digging their heels in against overstimulation of the economy. This is why it is not unthinkable that the Fed will raise the Federal Funds rate even while unemployment continues to grow. I mean despite all the double talk and misdirection it is impossible not to see that the Fed is tightening from its position of some time ago. Look at what has happened to the Discount Rate. It has gone up 0.25% and the loan period has dropped first to 28 days from a much longer period to the current position of 1 day. All we need is another 0.25% rise and then the one after that can be expected to be accompanied by an 0.25% rise in the Fed Funds rate. The differential between the Federal Funds rate and the Discount Rate is normally 1.0%. At the long end, we can look forward to the ending of quantitation easing by the end of this month. What we got here in the US economy is a situation that is not good. Yes, everything is hunky-dory on the inflation front with the Consumer Price Index at the present time. However, the present time is not the worry. The worry is what is looming ahead. I have had advice that the Producer Price index is running at 4.6%. Generally speaking, the PPI is what drives the CPI. Of course, with the economy in poor shape with high unemployment and not much scope for wage increases, it is difficult for businesses to pass PPI increases thru to the CPI. But, if the PPI keeps growing like this, it is only a matter of time before retail prices start going up and we get visible inflation. After all, companies are not in business to lose money.
No wonder certain members of the Fed are getting edgy and digging their heels in against overstimulation of the economy. This is why it is not unthinkable that the Fed will raise the Federal Funds rate even while unemployment continues to grow. I mean despite all the double talk and misdirection it is impossible not to see that the Fed is tightening from its position of some time ago. Look at what has happened to the Discount Rate. It has gone up 0.25% and the loan period has dropped first to 28 days from a much longer period to the current position of 1 day. All we need is another 0.25% rise and then the one after that can be expected to be accompanied by an 0.25% rise in the Fed Funds rate. The differential between the Federal Funds rate and the Discount Rate is normally 1.0%. At the long end, we can look forward to the ending of quantitation easing by the end of this month. What we got here in the US economy is a situation that is not good.

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