If I might, I would like to tidy up my last two articles about inflation and the Fed. It is a complex topic, as I said, but it one traders and investors need to understand as best we can in order to get ready for the next cyclical phase of the economic recovery.
My conclusion is that inflation is running higher than the Feds would like to represent, but it is not running high enough for them to announce any kind of thinking about raising rates or curbing the QE programs that are currently in place. I believe the catalyst for this thinking will be accelerated growth in the economy. I am also saying that the accelerated growth is coming sooner rather than later, so, consequently, the Fed will need to be proactive, not reactive, in raising rates and suspending the remaining portions of its QE program.
I question whether the Fed can move quickly enough to stymie the rise in inflation when it breaks out. I am also concerned with the ramifications of the Fed possibly chasing down inflation with large or frequent rates hikes. What, in fact, will that pursuit do to the market? What will happen to the bond market? What will happen to the recovery?
Evidence is mounting that the largest remaining stumbling block to the economy is the unemployment rate, but evidence is also pointing to a recovery in that arena. Private surveys now indicate a stronger willingness on the part of employers to hire. ManPower, the largest U.S temporary staffing company, said yesterday that the hiring of temp workers is fitting the traditional cycle of an economic recovery. Their numbers tell them that the U.S. economy is on the verge of turning the corner on employment. The government numbers are pointing to the same conclusion.
The Labor Department said the four-week moving average for claims for unemployment benefits slipped to a two-year low, reviving hopes a labor market recovery is under way.
We will see how this turns out in the next 3-6 months, but if I am right, get ready for a market that just might shoot up and then roll back down to reality. Then again, what else is new? The market has been operating in a world of uncertainty for some three years now. Nevertheless, preparing for more potential uncertainty certainly could not hurt.
Trade in the day; invest in your life
