big trouble at mill: usd, page-19

re: trouble at mill: inflation. here we come There are 2 points to consider:

1. As long as the US$ stays "high", trade deficits will remain high. The EEC does't want to serve as a sacrificial goat by having a high Euro.

Whatever, this apparent non cooperation will result in a delay of badly needed restructuring of the US economy but could give the EEC some breathing space while recovering.

2. The current 10.2% CPI/annum is too high in view of the fact that the FED interest rate is 5%. It is useless to increase interest rates by 0.25% in stages in these conditions.

One can't say that this 10.2 % will last throughout the year, it could go lower or higher.

But, I think that Volcker in these conditions would have raised the interest rate by a total of at least 300 points or to 8% (Depending on data), at least 1% at a time rather than a timid 0.25% which is merely stroking the inflation rate.

Of course, that would give Housing a very hard landing.

The latest CPI data has prevented Bernanke from steering through the various difficulties without too much damage.

Gerry