It doesn’t take a Ph.D. in economics to realize we are facing increasing inflationary pressures across the board in housing, food, education, travel, and medical costs.
Is the jump in consumer, and producer, prices we have seen in April and May, just “transitory” as suggested by Federal Reserve Chairman Powell, or the early sign of something more serious?
That is the $64 Million Dollar question for today’s investors in Bonds and Stocks, which we will try to address in these pages over the coming weeks. If inflation is more than transitory, then the major tools the Fed has to combat inflation expectations, is to stop the unlimited printing of money, and by raising interest rates.
Either, or both, of these inflation fighting actions, would be in opposition to the Fed’s policies these past years, and would probably cause significant headwinds for bond and stock buyers. For every 1% increase in interest rates, long term bonds lose 6-8% pf market value.
So, one of the major question facing investors and savers is if the recent inflation numbers is just a temporary speed bump in the economy, or the tip of the iceberg for an inflationary cycle, like we experienced in the 1970’s. That cycle of inflation, some of you may recall, was only stopped by Fed Chairman Paul Volker raising long term interest rates to over 12%.
That is the $64 Million Dollar Question facing today’s investors.
This site will provide educational material to help the general public consider these issues against the background of history. However, this is not an investment site, and we are not professional economists, nor investment advisors.
Note: The $64 Million Dollar Question was a very popular quiz show TV program in the 1950’s where contestants answered a series of increasingly difficult questions, as the prize amounts doubled at each round, reaching a top level of $64 Million Dollars. In today’s dollars, adjusting for inflation, that might be $64 Billion Dollars.
These popular quiz programs ended in scandal, when it was learned that some favored individuals had received the answers in advance. For more information about the Quiz Show scandals, read Richard Goodwin’s investigation of the Twenty One Quiz Show scandal, which was turned in a movie nominated for four Academy Awards.