Balancing Inflation and Growth Part 7 of 13

At the same time, I am fully aware that the FOMC must be careful to not undermine that recuperative process. Here, of course, I refer to the potential harm to the consumer and the business and future trading software financial sectors alike by unwittingly allowing the perception to take hold that, as the New York Times editorialized in its lead front page article last Thursday, the Federal Reserve, signaled its readiness to bolster the economy with cheaper money even though inflation is picking up speed.

Talk of cheap money makes my skin crawl. The words imply a debased currency and inflation and the harsh medicine that inevitably must be administered to purge it. So you should not be surprised that I consider the perception that the Fed is pursuing a cheap-money strategy and commodity trading education, should it take root, to be a paramount risk to the long-term welfare of the U.S. economy.

I believe the Times overstates its case. Chairman Bernanke made clear in his congressional testimony last week that we are monitoring inflationary pressures and expectations closely. And yet, I understand the source of the Times sentiment. In a globalized capital market where money is free to move anywhere it pleases, there is scant tolerance for even the slightest whiff of inflation. Since the January FOMC meeting, longer-term rates, including those on fixed mortgages, have risen rather than followed the federal funds rate downward.

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Balancing Inflation and Growth Part 3 of 13

Indeed, as I speak, central bankers here and across both the pond and the channel feel besieged by a seemingly insurmountable foe delivering retribution for our having been complacent, if not smug, during those happier days. Like Henrys troops at Agincourt, it may appear that we face overwhelming odds. Yet I am not overwhelmed.

Why not, you ask? How to trade commodities allows me to invoke another of your English ancestors in reply. Winston Churchill once asked: Why is it that the ship beats the waves, when they are so many and the ship is one? The reason is that the ship has a purpose. Tonight, I wish to give my view of the purpose of the Federal Reserve.

Needless to say but I will say so any way the views commodity market trading I express this evening will be my own and not those of any other member of the Federal Open Market Committee or any official of the Federal Reserve System. This is but one mans soliloquy.

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Balancing Inflation and Growth Part 11 of 13

One would like to think that as the economy slows, inflationary pressures will do likewise. But we cannot always be sure they will, given the globalized commodities trading system nature of the U.S. economy. Demand-pull pressures abroad have an increasingly potent influence on our domestic economy. Traditionally, a central bank would expect slack to develop as the economy under its jurisdiction weakened, leading to less demand for most inputs and an easing of price pressures. We no longer operate in a traditional economy. Domestic inflation developments have become increasingly less sensitive to domestic measures of slack. In an open, globalized economy, capacity utilization and inflation pressures need to be measured, or at a minimum, understood in their global context.

You cannot think in a purely domestic context about the pricing of oil or steel or soybeans or pulp or shoes or clothing or even what I consider to be one of lifes essentials, beer, because innovations in transportation and communications technology have all but eliminated national borders for almost any product for which trade barriers were negotiated away during the 1980s and 90s. More commodity training books vexing for economists and econometric modelers, the information technology revolution and the spread of the Internet have blurred the once-clear distinction between easy-to-trade goods and difficult-to-trade services.

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