| In The News #49 >> | ||
>> TITLE Some Fear Inflation Will Return Lead Story-Dateline: >> SUMMARY Some economists feel the economy is primed for a bout of inflation. An increasing money supply, low interest rates, higher government spending, and a falling dollar all tend to push inflation higher and currently all those factors are in play. If enough investors fear the same, then bond prices will begin to fall and potentially dampen the economic recovery. One the flip side of the coin, unemployment remains high and could be even higher if discouraged workers were counted. Most experts indicate that the labor market is the primary driver of inflation. The Fed concurs and feels like the economy will need to create between 150,000 and 200,000 jobs a month for over a year before inflation becomes an issue. In any case, investors should position themselves for the potential of inflation and stay out of long bonds. Commodity stocks and utilities have historically been good plays during inflationary environments. However, manufacturers might fare well since their stock prices have been beaten down over the past three years.>> Talking it Over and Thinking it Through
>> Thinking About the Future Over the next few months watch the Fed's reaction to the threat of inflation. When the Fed begins to raise interest rates you can expect to see bond markets solidify their response and decline accordingly. Right now the bond markets are a bit schizophrenic, one day they are up, the next day they are down. The collective wisdom of bond investors shows the uncertainty regarding inflation next year.
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