Tuesday, February 1, 2011

A rate rise likely in China

China is likely to raise rates

China’s government, increasingly worried about soaring inflation, plans to continue tightening its money supply and will probably raise interest rates again within the month. China’s consumer price index rose 4.6 percent last year, but analysts said that underestimated inflation.

That is the forecast of economists and bankers with knowledge of policy makers’ views, who insisted on anonymity because of the political and diplomatic sensitivity of Chinese monetary policy.

Inflation lately has caused friction in China’s mighty export machine. Now, Beijing’s efforts to fight inflation, through higher interest rates and tighter restrictions on bank loans, could begin to slow segments of China’s domestic economy slightly — particularly the breakneck pace of investment in new factories, office buildings and apartment complexes.

Manufacturing costs

More evidence of rising prices...

The manufacturing sector grew at its fastest pace in nearly seven years in January and signs of inflation jumped more than expected as a recovery in the world's biggest economy gained traction.

The Institute for Supply Management's manufacturing survey released on Tuesday also showed employers were thinking about ramping up hiring, one of the weak spots of the recovery so far, and helped push U.S. stock prices to their highest since June 2008.

Friday's closely watched U.S. payrolls report is expected to show the economy added jobs for a fourth straight month in January but still not at the rate needed to make a big reduction in unemployment.

Manufacturing costs are rising

From Reuters...
Costs to manufacturers are rising around the world, data showed on Tuesday, the latest evidence of growing inflation pressure from commodity prices as the global recovery gathers speed.

Inflation has hurtled to the top of the policy agenda in emerging markets and in Europe. But in the United States rising commodity prices are unlikely to lead to higher consumer prices and prompt the Federal Reserve to drop its easy-money policy.

Rising food and fuel prices have hit poorer countries and are one of the factors behind massive anti-government protests in Egypt and in Tunisia

Sunday, January 23, 2011

The Fed: what can it do?

There are no good options available for the Fed......
There are any number of ways to say it, but it all comes down to the same thing. The Federal Reserve has reached the rock and a hard place position when it comes to the Federal Reserve Rate.

According to the US Treasury, the cost of paying the interest on the national debt was 413 billion dollars in 2010. Despite the fact that our national debt at the time reached 13.5 Trillion, that was not a record, it was barely an effective rate of 3.05%. Just 10 short years earlier, our effective rate on the national debt was 6.19% and the Federal Funds rate was 3.5%.

So by lowering the Federal Funds rate, we cut a like amount off the effective rate of the interest on the national debt. In fact, since 2000, the effective rate of interest on the national debt has fallen from 6.38% to just 3.05%. During the same period, the national debt rose from 5.6 trillion to 13.5 trillion. (Figures based on Sept 30, end of the federal fiscal year).

Wednesday, February 20, 2008

Just keep on printing the money

...and you will have inflation.

LONDON (Thomson Financial) - Money supply growth in the UK unexpectedly accelerated in January, keeping alive rate-setters' concerns about medium-term inflation pressures, provisional figures from the Bank of England showed. In its first release of the money supply data for January, the central bank said M4, a broad measure of money supply, rose 1.3 pct from December for a 12.9 pct yearly rise.

The US has an inflation problem there anyone at the Fed paying attention?

With stock prices and credit market turmoil appearing to stabilize, at least momentarily, from Wall Street's volatile New Year's debut, anxious investors have found a new worry: inflation.

Crude oil futures settling above $100 a barrel for the first time Tuesday reminded consumers and businesses that they are paying more for many essential items.

Evidence has mounted that a U.S. recession is under way or in the wings. Typically, recessionary conditions prompt stable or lower prices. But commodities, from copper to soybeans, have been marching steadily higher this year, led by oil.

Bernanke - the inflationist

US inflation is surging ahead, while the Fed cuts rates. If want a recipe for an economic disaster, then Bernanke is your cook Despite what people might think, he is cooking up some more interest rate cuts

US inflation may stall rate cuts

Energy prices have fuelled the surge in inflation US consumer prices rose by 0.4% in January, official figures show, more than many analysts had forecast. According to the US Labor Department, the main drivers of the price growth were food and energy costs.

The figures come as the US Federal Reserve has been slashing interest rates in an effort to kick-start slowing economic growth. Analysts say that inflation concerns may hamper the Fed when it comes to cutting rates again in the future.