Today we will be giving your our insights on interest rates and what will cause inflation to rise in the near future as Janet Yellen spoke about these issues last Friday. Investors need to remember that we are in mid-term elections. While everything seems to be running smoothly right now between Congress and the President, after the elections we may see a return to less cooperative times. This kind of political environment could have a significant impact on the economy, your portfolio and possibly cause inflation to rise
A good week for the markets
It was a good week for the Stock Market last week as the DOW was up about 2%, the S&P 500 was up 1.7% and the NASDAQ was up 1.6%. Overall we saw better than expected economic numbers last week and Consumer Price Index (CPI) was in-line as anticipated. Housing starts and existing home sales were fantastic which was a big surprise. The Philly Fed’s report on manufacturing was also good.
The Fed addresses inflation in the near future
The Fed minutes were released last week indicating that they are still committed to raising interest rates in 2015. This has a broad impact on credit cards, mortgages, home equity lines and more. Often the anticipation of rates going up causes more tension in the markets than when it actually happens.
We are concerned over inflation rearing it’s ugly head. We do not want to see inflation like we saw in the 1970s, but when the Fed floods the market with money as it has been doing, this will cause inflation to rise. The Fed has said they don’t see inflation staying under 2% indefinitely as they’ve seen, since 1980, a big divergence growing between wage growth and inflation. This means as people are starting to make more money again, they will start spending it which produces more demand on a limited number of goods. This will cause inflation to rise.
Janet Yellen’s view of the economy
Janet Yellen has said there are the worst economic conditions since the Great Depression and we agree. It has been difficult to anticipate and look at these conditions from a historical perspective especially when it comes to labor. Also with the slack in the labor market, it has been difficult for the Fed to look at the real unemployment problem.
Technology will cause inflation to rise
What the Fed is just now seeing we have talked about in previous videos. We’ve been seeing technology driving down prices for a while now. Consumers are now able to go out and buy technology items, like flat screen TVs, because the prices have dropped so much in the past few years. It’s now becoming cheaper to buy fast food than it is to eat healthier at home.
Technology will change the government soon
We believe the next big industry to be impacted by technology is the government. Within the next few years we will see political candidates win because they are pro technology and they are pressing the government to streamline and downsize.
What we anticipate this week
This week new home sales numbers, durable goods orders, and a second revision of GDP will be released. Investors should not be surprised if we see this pull back. It is anticipated. We will also see personal income numbers revealed which helps the Fed uses to track inflation.
We are constantly tracking this kind of data on what could cause inflation to rise and we have many strategy planning meetings concerning this throughout the week. We are committed to keeping you up to date with these videos and on our podcast. If you have concerns about how this applies to your portfolio and other issues that develop this week, please email us or call us at (205) 989-3498.
Greg Powell, CIMA
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fi-Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. fi-Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. performance referenced is historical and is no guarantee of future results. indices are unmanaged and may not be invested into directly.