As expected, the Federal Reserve lowered interest rates by another 25 basis points, and signalled a pause. Beyond that, who knows? The Fed wants to signal simultaneously that it will do whatever it takes to keep the financial system liquid--and that it will be tough on inflation. These goals are mutually exclusive. Monetary policy for the next six months will respond to whichever happens to worry the board most at the moment.
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Recently, loose monetary policy seems to have caused a rise not in the general price level as it did in the '70s, but rather successive asset bubbles -- first in the stock market, then in housing prices, and now in commodities.
Does anyone have a good explanation for this phenomenon?
"Does anyone have a good explanation for this phenomenon?"
All of these markets go up when people invest in them. People like to invest in markets that are going up. When they go down, they move their money to the next rising market.
@pct, because Chinese factory owners have yet to crack the manufacture of US stocks, houses and commodities.
"These goals are mutually exclusive."
Maybe not, if the Fed limits itself to measures targeted specifically to the parts of the financial system that need liquidity (e.g., its Term Auction Facility) rather than more cuts in the Fed Funds rate.
The mother of all bubbles has yet to burst. Can anyone reading here identify it?
I wonder what the Fed will do next when it does not want to (and should not) lower rates more. I keep thinking we will wake up with Bernanke's pants run up the flagpole.
And when do the equities markets actually begin to act like something bad is happening?
Oh well today is Friday, so should be interesting.
Before you go to work, Finn, I'm sorry to inform you that it is Thursday. But it could still be interesting!
Yancey emerging markets, Commodities/energy perhaps? Confidence in one of the presidential candidates? Which one is your favorite?
Mindles,
None of those.
We could print a lot of really flimsy dollars that disintegrate after a little time passes. Whoa, the metaphor was unintentional.
To respond to Yancey, the mother of all bubbles has to be the universe, which expanded by a factor of 10^26 shortly after the Big Bang. Fortunately, Ben Bernanke & Co. can't do much about it.
How about the perceived value of the European-style welfare state?
Yancey,
Food? Food prices are rising, and after everyone starves, nobody will need food anymore?
Then again, once all our SUVs run on corn, maybe the prices will stay high...
Well, don't keep us in suspense too much longer. I'm curious if you've truly bested EMH, or if you're just setting up a nice joke.
Pct notwithstanding (good one about the universe!), I consider the mother of all financial bubbles to be the bond bull market that has basically run unchecked for 27 years. I think this one is coming to a close within the next year or so. I consider it the bubble that has made all the others possible. The sudden reemergence of commodity price inflation might be the closing bell ringing.
Dreck@6:05:
Yea it was about 12:00 or so Phoenix time when I posted that and as I lay in my bed it hit me, "Dude, tomorrow is THURSDAY, not Friday".