Monday, April 10, 2006

Current issues

Recently, Fed unanimously raised the Fed Funds rate by another 25 basis points to 4.75 percent. Officials did mention that inflationary pressure is well under control but will that be sufficient to stop Bernanke's monetary policy approach? The world is expecting the Fed to raise the rates past 5 percent this year (possibly the 16th time this May) if crude oil prices continue to rally. Yes it did, as of today crude oil is trading at $68 per barrel (thanks to Iran's nuclear standoff). If current inflation is induced by volatile crude oil prices and not demand, I dont see how raising the Fed Funds rate will curb inflationary pressure. Why Mr. Bernanke? Someone educate me? A couple of months ago, the UST yield curve was inverted, to those who understand, it was an indication of recession. Well fine, the curve looks normal now, thank the rate of increase in the long term rates if you want but I reckon US is up for some real deep shit. American will soon feel the torment as readjustments are made on their morgages. Debt is becoming very expensive for businesses and growth will have to be compromised, who cares about the drop in the unemployment rate to a 4 1/2 year low, the fall is imminent. On a pecking order, China and Japan will have the first claim perhaps? For Asian countries relying heavily on exports to US, they too are up for some serious beating...well maybe not China. Sell your bonds!


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