Tuesday, April 29, 2014

Will U.S. inflation increase?

Those of us who are old enough remember when mortgage rates were in the high teens and you needed a 10% salary increase just to keep up with inflation.  Other lowlights of that era are tunes like "Disco Duck", Barry Manilow, the Ford Pinto (I had one), and rationed gasoline.

The US economy is now recovering with unemployment falling, house prices increasing, and the fed is still pumping tons of cash into the economy via Quantitative Easing, a tactic never tried before.  Inflation in the past was either driven by printing money (check) and/or a tight labor market (hmm maybe a check there too).  This Bloomberg graphic shows the dramatic change in the US labor market over the past 5 years.   A little inflation (2-3%) is a good thing, could we see 10%+ inflation if the fed's tactics have unintended consequences?

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