Feb. 28 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke's readiness to cut interest rates to avert a recession is stoking concerns that prices will get out of hand. Bernanke told lawmakers the Fed anticipates inflation will slow, in part because of ``sluggish'' economic growth and rising unemployment. In their quarterly forecasts published this month, central bankers projected prices, excluding food and energy, will rise 2 percent to 2.2 percent this year, slowing to a 1.7 percent to 2 percent pace in 2009.
Money is cheap. Real short-term interest rates are too low.
Inflation is under control when short-term interest rates are 1.5-2.0 times inflation. In other words, with inflation close to 4%, short-term interest rates should be close to 6%-8%.
The rate on 13-week Treasury bills instead is close to 2%. Wow! And Mr. Bernanke says he wants to control inflation?
The dollar, meanwhile, is sinking and gold and most commodities are soaring. It looks more and more like the investment environment of 2002-2003.
The markets always win.
More on https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
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