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Monday, March 28, 2011

Worried About Inflation, Fed to Consider Ending QE2 Early

Some members of the Fed are quite worried about inflation and speaking their mind:
Fed Should Consider Curtailing Stimulus Program, Bullard Says
March 28 (Bloomberg) -- St. Louis Federal Reserve Bank President James Bullard said policy makers should review whether to curtail a plan to buy $600 billion in Treasury securities, noting that the U.S. recovery may not need that much stimulus.

“The economy is looking pretty good,” Bullard said to reporters in Marseille, France, on March 26. “It is still reasonable to review QE2 in the coming meetings, especially this April meeting, and see if we want to decide to finish the program or to stop a little bit short,” he said, referring to the second round of so-called quantitative easing.
“If the economy is as strong as I think it is then I think it may be reasonable to send a signal to markets that we’re going to start withdrawing our stimulus, and I’d start by pulling up a little bit short on the QE2 program,” Bullard said. “We can’t be as accommodative as we are today for too long, we’ll create a lot of inflation if we do that.”
CPI is above its 2008 level so SS recipients should get a COLA this year, but like most of us who work and pay into SS, the gain will probably be eaten up completely by higher medical insurance costs.
At least most people on SS got a nice, big 5.8% raise in 2009 that they kept when CPI fell while most of the country took pay cuts or got no raises.
It ruins my day just to think how much my own medical insurance went up since that last SS COLA of 5.8%! 

Bob Brinker on Inflation

Bob Didn't have much to say about inflation this weekend other than his regular comparison of the Treasury Inflation Protected Securities yield versus regular Treasuries. He said the 10-year TIPS has a base rate of 1% and when you compare that to the 10-year Treasury yielding 3.43% you get a Treasury inflation expectation of almost 2.5% for that time frame. For the longest time frame, the 30-year TIPS is yielding 1.87% versus the 30-year Treasury Bond which is yielding 4.5% which prices in annual implied inflation rate of 2.625% over the next 30 years.  Bob believes these are the rates of inflation that the Treasury market expects on an annual basis over the next 10 and 30 years, respectively.

I don't completely agree because the federal reserve with QE2 is printing money to buy US Treasuries to keep rates low.  They currently buy about a third of treasury debt issued so there is significant demand holding rates lower than they would be in a "free market" environment.  Their buying could easily distort this calculation.

MONEYTALK GUEST March 27, 2011  
Bob Brinker had on John Mauldin to discuss his book, "Endgame: The End of the Debt SuperCycle and How it Changes Everything"

1 comment:

  1. I would like to comment about bob brinker recommending that his listers buy only quality well if they tuck all of bobs advise they would never have had the chance to buy apple computer at 5 dollars a share back in 1998 or ford motor two years ago at 1 dollar or petsmart 10 years ago at 2 dollars or Laboratory Corp. of America Holdings (LH) at three dollars ten years ago or pricesmart at 5 dollars seven years ago or joe ann stores at 2 dollars ten years ago or the sports authority at 2 dollars ten years ago. many of these stocks have seen twenty fold increases in their share prices I could go on and on.


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