Stocks & Bonds
Fed kills a key inflation gauge
Friday, March 31, 2006
The Fed wants you to think it’s fighting inflation. So why did it kill an important measure of the money-supply boom that feeds rising prices?
The U.S. Federal Reserve made big news at the end of March. And almost nobody noticed. Here’s the headline you didn’t see:
Fed kills M3, decides money supply doesn’t count
Move raises risk of higher long-term inflation and new asset bubble
I’m obviously not talking about the March 28 decision to raise short-term interest rates one more time to 4.75%. That got headlines all right, and most of them portrayed the Federal Reserve as a tough fighter against inflation.
The March 28 interest-rate hike wasn’t exactly unimportant. Stocks and bonds both took a hit that day because the language accompanying the Fed’s 15th rate hike since June 2004 proved that those who had bet on “one more and done” were clearly wrong. The Federal Open Market Committee is now very likely — an 88% chance, according to the futures market — to raise rates again at its next meeting on May 10. The odds on a further hike at the end of June have started to climb as well. Higher interest rates in the future will put downward pressure on the prices of stocks and bonds.
Thought I’d pass this along for those of us who have retirement funds, etc. in stocks & bonds.
The old axiom “Stay the course” just doesn’t ring true these days.