Commodity stocks and inflation bulls have taken a nice hit the past week. The Market appears to be pricing in the end of Fed QE2 monetary policy. As the Board stops monetizing the debt by purchasing treasury securities, interest rates should rise, albeit slightly. Keep in mind the Fed funds rate is still at 0-0.25% range (<http://en.wikipedia.org/wiki/Federal_funds_rate>). I do not expect the target rate to be raised anytime soon.
At what point does the market have QE2 fully priced in? Does the FOMC factor in Chinese inflation to their monetary policy decisions?
The exported inflation is essentially soaked up when China buys T-Bills to keep the currency peg in place. If they stopped buying T-Bills and let the currency float, interest rates in the US would rise, increasing the cost of US borrowing. This would also encourage US exports as they become more competitive in the global market.
Michael Fletcher of the Washington Post published an article in today's paper about manufacturing jobs in the Rust Belt (<http://www.washingtonpost.com/business/economy/in-rust-belt-manufacturers-add-jobs-but-factory-pay-isnt-what-it-used-to-be/2011/05/17/AFDmL55G_story.html>). These jobs are a direct result of easy monetary policy.
How long will these manufacturing jobs last? When does the FOMC initiate the first rate increase? Do they miss the boat and increase 0.5%? Or do they gradually lift the rate by 0.25%? What role does China play in the FOMC target rate decision?
The European Central Bank is consistently ahead of the Fed in terms of raising the target interest rate. The ECB has too much political power concentrated within the German economy. While America lowers its target rate to help the struggling economies of MI, CA, FL and NV; the ECB raises its target rate as Greece, Portugal, Ireland and Spain pay higher interest rates to finance their debt. If the entire Eurozone were as healthy as Germany there would not be a problem, but this is not the case.
At what point does the market have QE2 fully priced in? Does the FOMC factor in Chinese inflation to their monetary policy decisions?
The exported inflation is essentially soaked up when China buys T-Bills to keep the currency peg in place. If they stopped buying T-Bills and let the currency float, interest rates in the US would rise, increasing the cost of US borrowing. This would also encourage US exports as they become more competitive in the global market.
Michael Fletcher of the Washington Post published an article in today's paper about manufacturing jobs in the Rust Belt (<http://www.washingtonpost.com/business/economy/in-rust-belt-manufacturers-add-jobs-but-factory-pay-isnt-what-it-used-to-be/2011/05/17/AFDmL55G_story.html>). These jobs are a direct result of easy monetary policy.
How long will these manufacturing jobs last? When does the FOMC initiate the first rate increase? Do they miss the boat and increase 0.5%? Or do they gradually lift the rate by 0.25%? What role does China play in the FOMC target rate decision?
The European Central Bank is consistently ahead of the Fed in terms of raising the target interest rate. The ECB has too much political power concentrated within the German economy. While America lowers its target rate to help the struggling economies of MI, CA, FL and NV; the ECB raises its target rate as Greece, Portugal, Ireland and Spain pay higher interest rates to finance their debt. If the entire Eurozone were as healthy as Germany there would not be a problem, but this is not the case.
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