Will Bernanke control the inflation monster?
Posted on 31. Jan, 2010 by Global in Economic News
According to reports coming out of Washington on Friday, the nation that started the whole global financial kerfuffle has finally had a quarter of growth! 5.7 per cent pace of expansion in fact!
News of this positive growth quarter (the best since 2003 and far better than the 2.2 % pace from the third quarter) was expected to bring the bulls back into the stock market, however despite the Dow climbing over 27 points in the first 10 mins of trading, it finished the day lower once again.
The U.S’ positive news though, has done little to relieve the European jitters affecting the global markets once more. European data shows rising unemployment rates in some countries climbing as high as 19.5 % and the 15 month high oil prices over there have only added to the problem with inflation growing at a rate the fastest seen in 12 months.
And in the dog chasing it’s tail scenario we’ve now watched for almost 2 years, the newly re-appointed Bernanke (senators debated the decision for hours apparently), seems to have a mammoth task ahead of him…. will he be able to keep the U.S inflation monster tame?
Traditionally, governments around the globe raise interest rates to keep inflation at an accepted maintenance level. They always have in the past, it’s all part of the normal cycle. And while short-term interest rates in the U.S have been kept near zero since December 2008, the pollies are not really going to cheer when the fed finally starts to increase rates….. putting the brakes on the economic recovery.
Look at it this way.. if the market don’t believe the government will keep inflation under control, there will be more inflation….. after all… who is the market?
Why, it’s people of course!
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