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The last time the Fed had to crush inflation (80-81) it was devastating for many countries whose debts were denominated in dollars. Mexico got it really bad.
The dollar will continue its relative strength run into the medium and probably longer term for three reasons:
1. One may make a case that the Swiss franc is the safest currency in the world. I'd argue it's still the USD. During times of turmoil across the world investors and governments turn to the greenback itself and dollar denominated securities and assets as safety plays.
2. Overlapping 1........around the world many sellers of everything from commodities to purses and haircuts prefer and often demand to be paid in greenbacks. As an example.....I used to own a small slice of an oil and gas hard-goods supplier. We sold things like oil stem (drilling pipe) in Africa, we accepted nothing but dollars as payment with scant exception. We would on occasion make small deals in local currency but always at significant premium.
The above occur mainly because the USD is a better store of value than local currencies. Better price stability, better confidence etc.
3. Inflation seems sticky upwards so I have little hope the Federal Reserve will lower rates anytime soon. An increasing US discount rate and other tightening measures tend to correlate with higher bond yields and the later in particular correlates strongly with a strong $. So we are where we are for a good while.
The Feds statement last year that "Inflation was transitory" was partially correct. Because they were measuring inflation due to supply and logistical issues with the global pandemic. They didn't increase rates at the time, now that borrowing costs are higher but they haven't accepted that supply issues can't be fixed with rates. They now stubbornly said they need to be more hawkish to address inflation.
Raising rates has nothing to do with fixing the CPI. Doesn't take a genius to understand that energy prices causes inflation.
Raising rates has nothing to do with fixing the CPI. Doesn't take a genius to understand that energy prices causes inflation.
Your first claim is simply incorrect and the second incomplete. Energy prices have exacerbated this round of inflation they did not cause it. It also does not take a genius to understand that energy prices are rolled into headline CPI.
Below is a brief vid on how housing & rent prices can skew inflation numbers. Some or many of you folks in this section of the forum know this.
I didn't know that 1/3 of the inflation basket data is actually the "Shelter Index."
This data is also calculated less often and differently.
Owned home are assigned a number called "Owner Equivalent Rent" (OER) based on what the house or condo can rent for based on comps in the area. This is done this way b/c home ownership is considered investment.
It's called "Sticky Prices" b/c these prices change less frequently than food, gas prices, etc.
Your first claim is simply incorrect and the second incomplete. Energy prices have exacerbated this round of inflation they did not cause it. It also does not take a genius to understand that energy prices are rolled into headline CPI.
My 1st claim was that Feds believed inflation was temporary because at the time there were logistical supply issues due to Covid last year. They did not care about the low interest rate environment and left it alone.
My 2nd claim is that the current inflation is due to energy price spikes and their claim is they want to fix inflation with interest rate hikes is useless. In fact I think it will be more harmful to rapidly raise rates while energy spikes put even more strain to businesses and consumers.
Below is a brief vid on how housing & rent prices can skew inflation numbers. Some or many of you folks in this section of the forum know this.
I didn't know that 1/3 of the inflation basket data is actually the "Shelter Index."
This data is also calculated less often and differently.
Owned home are assigned a number called "Owner Equivalent Rent" (OER) based on what the house or condo can rent for based on comps in the area. This is done this way b/c home ownership is considered investment.
It's called "Sticky Prices" b/c these prices change less frequently than food, gas prices, etc.
My 1st claim was that Feds believed inflation was temporary because at the time there were logistical supply issues due to Covid last year. They did not care about the low interest rate environment and left it alone.
My 2nd claim is that the current inflation is due to energy price spikes and their claim is they want to fix inflation with interest rate hikes is useless. In fact I think it will be more harmful to rapidly raise rates while energy spikes put even more strain to businesses and consumers.
This is what I was responding to:
Your words........"Raising rates has nothing to do with fixing the CPI. Doesn't take a genius to understand that energy prices causes inflation."
1. The first part is simply wrong. The Fed. increasing rates is all about slowing GPI which is reflected through CPI. Period.
2. Sharply increasing energy prices can drive inflation. However, this round of inflation began before energy prices shot up. FE PPI, several non-energy commodities etc. began to increase in price well before oil and gas.
The dollar will continue its relative strength run into the medium and probably longer term for three reasons:
1. One may make a case that the Swiss franc is the safest currency in the world. I'd argue it's still the USD. During times of turmoil across the world investors and governments turn to the greenback itself and dollar denominated securities and assets as safety plays.
2. Overlapping 1........around the world many sellers of everything from commodities to purses and haircuts prefer and often demand to be paid in greenbacks. As an example.....I used to own a small slice of an oil and gas hard-goods supplier. We sold things like oil stem (drilling pipe) in Africa, we accepted nothing but dollars as payment with scant exception. We would on occasion make small deals in local currency but always at significant premium.
The above occur mainly because the USD is a better store of value than local currencies. Better price stability, better confidence etc.
3. Inflation seems sticky upwards so I have little hope the Federal Reserve will lower rates anytime soon. An increasing US discount rate and other tightening measures tend to correlate with higher bond yields and the later in particular correlates strongly with a strong $. So we are where we are for a good while.
1. I don't think that there are enough Swiss franc to service the world's needs.
ALSO strong dollar makes our goods and services more expensive ,
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