Wednesday, September 23, 2009

Inflation Will Remain Low in the Short Term
Joe El Rady

Skiddish investors and laypeople have begun ringing inflation alarms all over the place. Every family member I know—even my grandmother—has been asking me about it. Let me be very clear, inflation is not a short term concern. Inflation will remain low for quite a while. Inflation is, however, a long term concern. The reasons for this are beyond the scope of this post; and, in future posts, I will delineate both the reasons for the lack of concern in the short term and for the concern in the long term. For now, I will only write, and I will expand on this also in other posts, that inflation is not a concern right now because quite frankly, the US economy still sucks. As for the long term, when economic growth returns, the concern regarding inflation stems from the very real possibility that the Fed may find it difficult to drain and/or offset the massive increase in bank reserves created by rescue responses to the recent instability in credit markets. More on this in future posts…