Rising commodity costs and a slowing economy may be sending the US into a period of so-called "stagflation" like the 1970s, said Brian Hicks, who helps manage US$1.5 billion at US Global Investors Inc in San Antonio.
Gold, corn and crude oil hit records last week on speculation demand will expand in China, the world's fastest-growing major economy, and traders bought commodities as a hedge against inflation. The US dollar fell to a record low against the euro on Friday on speculation the US Federal Reserve will cut borrowing costs for a sixth time since September to avoid a recession.
"If the Fed continues to cut rates, they'll be driving down the value of the dollar," Hicks said in an interview on Friday. "That could potentially lead to stagflation as commodity prices continue to gain."
Fed Chairman Ben Bernanke last month dismissed suggestions that the US economy is close to the conditions of stagnant growth and high inflation that create stagflation.
The US central bank has cut borrowing costs five times to 3 percent since September, the fastest pace since 1990. Trading in interest-rate futures now show a 98 percent chance the Fed will cut rates to 2.25 percent in its next policy announcement on March 18.
"Housing and credit markets still look bad, which means the Fed needs to be more aggressive cutting rates," Hicks said. "That's only going to mean a lower dollar and even higher commodity prices. We could see inflation accelerating further."
Consumer prices in the US climbed 4.1 percent last year, the fastest since 1990. The US dollar weakened to US$1.5459 against the euro on Friday, the lowest ever.
The pickup in the rate of inflation was spurred in part by a jump in the cost of energy. On Oct. 15, oil passed the all-time inflation-adjusted record of US$92.50 a barrel reached in 1981. The price reached US$106.54 on Friday on the New York Mercantile Exchange, the highest ever.
"We're going to have strong money flows into commodities as a hedge against further inflation," Hicks said.
Gold has climbed 16 percent this year, touching a record US$995.20 an ounce on Wednesday. The metal soared sixfold from 1977 to 1980 as the US entered a recession and the inflation rate climbed to 14 percent. Adjusted for inflation, the 1988 gold record would be US$2,284 today, the Federal Reserve said.
"The place to be right now is in precious metals," Hicks said. "It's not a question of if gold will reach US$1,000, but when."
The Federal Reserve needs to be "mindful" that soaring commodity prices may raise inflation more than expected, Vice Chairman Donald Kohn said on Friday.
Inflation hasn't reached a high enough level to signal stagflation, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
Still, the combination of escalating commodity prices, being driven by growth in China and emerging markets, coupled with slower US growth is an "anomaly," he said.
SECURITY: As China is ‘reshaping’ Hong Kong’s population, Taiwan must raise the eligibility threshold for applications from Hong Kongers, Chiu Chui-cheng said When Hong Kong and Macau citizens apply for residency in Taiwan, it would be under a new category that includes a “national security observation period,” Mainland Affairs Council (MAC) Minister Chiu Chui-cheng (邱垂正) said yesterday. President William Lai (賴清德) on March 13 announced 17 strategies to counter China’s aggression toward Taiwan, including incorporating national security considerations into the review process for residency applications from Hong Kong and Macau citizens. The situation in Hong Kong is constantly changing, Chiu said to media yesterday on the sidelines of the Taipei Technology Run hosted by the Taipei Neihu Technology Park Development Association. With
CARROT AND STICK: While unrelenting in its military threats, China attracted nearly 40,000 Taiwanese to over 400 business events last year Nearly 40,000 Taiwanese last year joined industry events in China, such as conferences and trade fairs, supported by the Chinese government, a study showed yesterday, as Beijing ramps up a charm offensive toward Taipei alongside military pressure. China has long taken a carrot-and-stick approach to Taiwan, threatening it with the prospect of military action while reaching out to those it believes are amenable to Beijing’s point of view. Taiwanese security officials are wary of what they see as Beijing’s influence campaigns to sway public opinion after Taipei and Beijing gradually resumed travel links halted by the COVID-19 pandemic, but the scale of
A US Marine Corps regiment equipped with Naval Strike Missiles (NSM) is set to participate in the upcoming Balikatan 25 exercise in the Luzon Strait, marking the system’s first-ever deployment in the Philippines. US and Philippine officials have separately confirmed that the Navy Marine Expeditionary Ship Interdiction System (NMESIS) — the mobile launch platform for the Naval Strike Missile — would take part in the joint exercise. The missiles are being deployed to “a strategic first island chain chokepoint” in the waters between Taiwan proper and the Philippines, US-based Naval News reported. “The Luzon Strait and Bashi Channel represent a critical access
Pope Francis is be laid to rest on Saturday after lying in state for three days in St Peter’s Basilica, where the faithful are expected to flock to pay their respects to history’s first Latin American pontiff. The cardinals met yesterday in the Vatican’s synod hall to chart the next steps before a conclave begins to choose Francis’ successor, as condolences poured in from around the world. According to current norms, the conclave must begin between May 5 and 10. The cardinals set the funeral for Saturday at 10am in St Peter’s Square, to be celebrated by the dean of the College
RSS