Wednesday, June 29, 2016

I am still predicting inflation

The dual mandate has been met.  Full employment and inflation.

But you say the Fed’s PCE price index is only at 1.6%.  Well, Jerome Powell, Fed governor, adjusts it for oil prices going up and for a slightly lower dollar to come up with 1.95%.

All markets are functioning. So there is no crisis for central banks to lower rates into.  As inflation goes up markets will increase interest rates and the Fed will follow.

I don’t know if inflation will or will not hurt stock prices.  The best argument for being bearish is that the stock market is high due to low rates.  If that is true, the argument goes, then stocks are likely to go down if rates go up.

Another thing.  Growth is slow.  Earnings have slowed.  That is the trend as the trend is for higher prices.  I am actually predicting a case of stagflation.

The best case for stocks is that the U.S. economy is the best place to be as problems increase in the world.  Capital inflows have been strong and should continue.

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