Inflation Fears May Be Overblown

[Jul 2, 2007.]

A recent report by the Associated Press indicates that worries about inflation may be premature.

The report indicated that, if you consider wholesale prices without taking energy and food costs into consideration, the situation is certainly not bleak. In fact, wholesale prices appear to be holding steady, indicating that the Federal Reserve may not alter interest rates after all.

The core pricing index, which excludes energy and food, increased a slim 0.2 percent in May. In April, the figure actually held steady.

As a result of this positive pricing news, the Dow Jones industrial average experienced its best two-day advance since July of 2006. The upsurge in the Dow indicates that investors are not as worried about the U.S. economy as one might thing.

If, in fact, inflation is not a worry, the Federal Reserve may not change interest rates after all.

Jay Suskind, a trader with Ryan Beck & Company, told the AP, "Now perhaps the glass is being seen as half-full. If the reason for higher interest rates is growth, well, at the end of the day, that's what grows corporate earnings."

In other words, while increasing interest rates can be a worry, the fact that the economy is growing is good news for American business. Since business provides the basic barometer for the economy, the financial outlook for the U.S. appears to be brightening, despite some storm clouds spotted on the economic horizon at the beginning of the year.

Still, oil prices have been on the rise, with ExxonMobil, Chevron, and Conoco Phillips all seeing increases in excess of one percent. Preliminary signs indicate that energy prices and food tabs may continue to increase in the months ahead. As a result, it might be said that current economic news is a mix of the good and the bad. Investors, at this point, appear to be banking on the idea that the good will triumph in the end.

Julie Ann Amos
July 2nd 2007

Recent News

• More Trouble in the Housing Industry
  The name "Freddie Mac" has become synonymous with home-buying—and with good reason. The organization represents the second-largest buyer and guarantor of home mortgages. In other words, if you own a home, chances are good that you've had some dealings with Freddie Mac. [July 3rd 2007]


• Forecast Darkens for U.S. Subprime Mortgage Market
  Subprime mortgages are often considered the wild cards of the U.S. mortgage industry. Extended to individuals who may have less-than-stellar credit, these mortgages are accompanied by a great amount of risk for lenders. [July 2nd 2007]


• Foreclosures Once Again on the Rise
  The Mortgage Bankers Association is reporting that foreclosures on adjustable-rate mortgages made to individuals with troubled credit histories skyrocketed in the first quarter of 2007. [July 2nd 2007]