Is All the Worry About Inflation Justified?
Thursday, June 26th, 2008
By Michael Lombardi, MBA for Profit Confidential
Yesterday, the U.S. Federal Reserve Open Market Committee met to set interest rates — and it did what most expected, which is nothing. “Standing Pat” is the official term when the Fed neither raises nor reduces interest rates. Here’s the statement the FOMC issued yesterday after its meeting:
“Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation expectations have increased.” Old news, especially for those who regularly read this column.
In my many years of watching the Fed, I’ve learned one thing: They are slow to react. Remember all that talk by Bernanke, Paulson and even the President earlier this month about a stronger U.S. dollar being in the best interest of the country? Well, that talk certainly wasn’t translated into an interest-rate hike yesterday.
At the most, the Fed now is simply “talking” about inflation being a bigger problem in light of a bottoming-out economy. But I don’t believe the Fed is convinced inflation really is a big problem.
My question continues to be the same:
Aside from oil prices and food prices, what else is rising in price these days? We know housing prices are falling. The stock market is down about 10% since mid-May. Automobiles and consumer products are declining in price. (And if inflation was out of check as we read in most newspapers, wouldn’t the price of gold be over $1,000 an ounce?)
So, is all the worry about inflation justified?
Let’s answer this question with another question: If all the worry about inflation was justified, wouldn’t the Fed have raised interest rates at least a quarter point yesterday? Yes, it would have.
All the talk about inflation, for me, has become over-rated because it is restricted to two groups: oil and food. If oil prices fall 10% from their current level, I expect most of the articles we are reading in the daily newspapers about inflation will suddenly disappear.
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Tags: federal reserve, inflation, oil prices, stock market, U.S. dollar
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
