Posted on 04/12/2005 12:04:52 PM PDT by LouAvul
WASHINGTON (MarketWatch) -- Many members of the Federal Open Market Committee said they had become less certain about their benign inflation outlook at their meeting on March 22, according to a summary of the meeting released Tuesday.
Many members said that circumstances had changed dramatically from their previous meeting in late January, with signs of a stronger economy than previously perceived and risks that inflation pressures could be intensifying.
"While underlying inflation appeared to have moved up only modestly, and nearly all participants thought that core and total inflation going forward would be relatively low, they had become less certain of that outlook for the next few quarters," according to the minutes.
Many members said the risks of higher inflation were now "tilted a little to the upside."
FOMC members said the total amount of required tightening in this cycle may have increased, but they stopped short of endorsing a need for a faster pace of rate hikes.
(Excerpt) Read more at marketwatch.com ...
Why does this sound ominous for people with large indebtedness?
Oil costs combined with raising interest rates will be a devestating blow to growth.
Time for Greenspan to GO.
Actually, in the long run inflation is good for debtors. You pay back lent money with inflated dollars. However, I don't think inflation is at all a risk at this point. It's a silly think for the fed to be worried about. What is is going to do is cause them to kill the housing market by notching up the interest rates.
Higher interest rates are strengthening the dollar. A stronger dollar will lower the price of imported oil and other commodities.
You're exactly right. They need to factor OUT energy costs when computing inflation, and factor it IN when trying to predict economic strength.
On the other hand, some Fed staff said they expected [?] a strong gain in productivity, which would keep inflation well-contained.
On the other hand, do the fed morons believe that in the real world the pace of increased productivity can outpace and match the volatility of energy prices? The Fed is in a state of denial about these realities if they believe the above. I could also ask, rhetorically, "Where do these people live?", but I know the answer is New York City, where there is no there, there.
Much of what has occurred economically since 9/11, heck, even since the end of the speculative bubble in stocks, strikes me as having been ultimately inflationary. Cheap interest fueled and continues to fuel obscene residential real estate prices in many parts of the country, but remember that this was the only bright spot in our economy for quite some time, and kept outright recession at bay. Heavy government borrowing should have been inflationary all along, but has been essentially subsidized by equally heavy buying of government issued debt by the exporting nations of Asia. I think we'll end up having to inflate our way out of overvalued real estate, a stock market that is still overvalued (even after several sideways years) and monumental government debt. When you look at it that way, paying back with devalued currency makes some level of sense. I've looked to the 70's for guidance as far as what to expect and how to protect my finances. Even though inflationary pressures are regarded as being contained for the moment, investing in energy, commodities, forest products, etcetera, which did well then, do seem to be doing well now. So, I'm not the only one who thinks this way.
Productivity is a huge huge number when compared to even the most volatile segment of energy prices. So in terms of absolute dollars, productivity dwarfs energy.
Oh, no. They are quite mendacious.
Inflation has been roaring along at 5-6% for the last several years, and the oil spike should kick it up to about 10%. You won't hear a word about it from these guys, who refuse to measure anything that actualy goes up on the off chance you might change your spending habits.
Government borrowing doesn't cause inflation. It simple (should) lead to higher interest rates and interest is the 'price' of money, and with increase demand, prices are suppose to rise. However, that has not happened. I bet over the past five years a charting of interest rates versus government borrowing would be completely inverse.
I've looked to the 70's for guidance as far as what to expect and how to protect my finances. Even though inflationary pressures are regarded as being contained for the moment, investing in energy, commodities, forest products, etcetera, which did well then, do seem to be doing well now.
I would do more than protect your finances - be aggressive and make your money work for you. Why not invest in rental properties? You need to own income producing assets. The stock market is a dog. You have to take huge risks just to get a 4% return on your investment and get no tax benefits. Rental property gives you more return, better tax breaks and as a bonus, usually appreciates.
True, but productivity cannot pace energy and in the end, productivity depends on energy more than labor or technology.
Doesn't it strike you that too many would-be, novice landlords are chasing too few renters in most markets? That could explain a few things. Resale homes being converted to rentals, reducing the supply of resale homes while keeping rents flat to falling. The notion of price as a reflection of the current value of future rents has flown out the window, or so it would seem to me.
I don't know enough about macroeconomics to agree or disagree, but my gut tells me that while energy is certain vital to the mix, productivity is mainly 'fueled' by the combination of technology and labor. All are dependent on each other, but the greatest gains and the greatest costs are in labor and technology?
Perhaps there are more investors willing to enter the rental market, but it's still a very good place to be. Consider what will happen when mortgage rates rise. There will be fewer first home buyers, so they'll continue to have to rent. Also, there will be fever 'novice' investors in rental property because the interest expenses will rise and knock some out of the market. What that means now is if you're a savy investor and find the right properties, you can own them for a very low interest cost. The key is to make your profit on the purchase, not count on it coming in on the sale.
"The key is to make your profit on the purchase, not count on it coming in on the sale."
Foreclosures and other distressed properties?
"What is is going to do is cause them to kill the housing market by notching up the interest rates."
It will destroy the housing market. I know several people who decided to upgrade from 200k homes to 500k homes and instead of locking in the low rates they signed arms. How many people used the equity in their homes to purchase other items and take lavish vacations. 3 years from now we will be looking at a lot of homes up for foreclosure especially seeing that a bunch of economist seemed baffled as to why salary increases have been somewhat stagnant since 01. If inflation heats up and raises do not keep up with inflation watch out. I was surprised to learn that the cost of housing is inaccurately figured into inflation. My mother and I purchased a town home last year for 223K as an investment property. I recieved a notice in the mail that my property taxes have gone up roughly 70%. Apparently the home was last assessed at 125K and they assessed it for 215K. Scary thing is a house in the neighborhood just sold for $267K. Is an increase in property taxes figured into the equation ? What about homeowners insurance if that goes up as well ? These states must be hurting for money because here in MD vehicle registration has also increased as well as parking fees and tolls. Betcha none of those items are factored into inflation.
While they may well be "idiots" there is nothing in your post indicating that they are merely that they do understand what inflation is and that a rise in oil prices cannot, by itself, cause it.
However, what I want to know is why a mealy-mouthed report like this cause the market to turn around today and go positive?
Core inflation numbers take out energy.
Inflation is less than 2% and has been for some time now.
Cheap interest fueled and continues to fuel obscene residential real estate prices in many parts of the country, but remember that this was the only bright spot in our economy for quite some time, and kept outright recession at bay.
Excellent point !
This rebound has been primarily interest rate driven. My fear is that health care will continue to be huge drain on many companies. Especially ones that have alot of legacy cost IE Ford, GMC and GE (in the future) I am very pessimistic about the next 5 years due to the rising cost of health care and global competition. I have read recently that salaries have remainined somewhat stagnant for the last 4 years and may continue to remain the same for possibly another 10. I am seriously contemplation switching my major from finance to something in the medical field because job security is my # 1 priority.
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