Friday, 4 March 2011
The impact of high oil on the recovery and jobs
We are seeing a lot of signs of inflation out there maybe it’s time for the Fed to wake up and smell the coffee and raise rates.
I think it’s time for the Federal reserve to start to guide the market as to the post June’s policy. We are approaching a time period where if these numbers continue to go in this direction, inflation will become a bigger problem than jobs.
Basically, the private sector is going well with 220 thousand jobs added, The federal government and the central bank need to dress this issue, including a post recession, budget deal needs to be put in place, and the Fed needs to balance it’s monetary policy.
I think that now we have fairly clear evident that from a directional stand point, unemployment is coming down and the inflation rate is going up. It’s just a matter of time until we get to the point that the Fed needs to begin normalizing policy.
The price for everything, including food and energy seems to be going up and the fact that there is no wage growth should concern Government. The American consumer is going to be feeling more and more strained, and that is going to take a chunk out of GDP growth.
Commodities are roaring because there have been a tremendous increase in global growth, and there have been a cut back in supply.
So what is the forecast for headline inflation next year.
Can a “oil chock” be both inflationary and recessionary at the same time?
When it comes to measuring inflation, we should measure it in terms of consumer spending discretionary and non discretionary to maybe get a better common denominator to tackle it and other factors that we cannot control are pushing oil to some extend.
If oil price gets higher down the road, I think this is a measurably acceptable outcome, the issue for the Fed is going to be aggregate price level, and the way the Fed thinks is, you cannot get that without the rising of wages, which are 70% of input cost and that is probably what the Fed is going to do.
Qe3 is not on the horizon right now. The US economy is doing well enough, there is a very little prospect of that. However, an oil chock should lower headline inflation next year. It weakens growth. It raises unemployment rate and the response of the Fed should be to ease
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