Wednesday Jun 13, 2007

Money Supply

Despite the recent correction to the falling prices and rising yields of U.S. treasuries, I've been wondering how the Federal Reserve might react in the coming months as the bond market remains jittery. The talk to beat inflation was tough when the new chair took his place. However, if money is tightened to reduce inflation, interest rates will have to rise even more, furthering the slump in the housing market already suffering from the recent subprime melt-down. This course of action will lead to serious unhappiness among those owning property. If the Fed decides on merely talking about beating the inflation while letting money loose, interest rates will remain less volatile and inflation will rise but perhaps at a slower rate than would cause a shock. If I were to bet, I would bet that the Fed will choose the latter coure of action. It is the politically "prudent" course although many who earn wages and have little property to own may suffer more than others.
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