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.
AIR SUPPORT: The Ministry of National Defense thanked the US for the delivery, adding that it was an indicator of the White House’s commitment to the Taiwan Relations Act Deputy Minister of National Defense Po Horng-huei (柏鴻輝) and Representative to the US Alexander Yui on Friday attended a delivery ceremony for the first of Taiwan’s long-awaited 66 F-16C/D Block 70 jets at a Lockheed Martin Corp factory in Greenville, South Carolina. “We are so proud to be the global home of the F-16 and to support Taiwan’s air defense capabilities,” US Representative William Timmons wrote on X, alongside a photograph of Taiwanese and US officials at the event. The F-16C/D Block 70 jets Taiwan ordered have the same capabilities as aircraft that had been upgraded to F-16Vs. The batch of Lockheed Martin
GRIDLOCK: The National Fire Agency’s Special Search and Rescue team is on standby to travel to the countries to help out with the rescue effort A powerful earthquake rocked Myanmar and neighboring Thailand yesterday, killing at least three people in Bangkok and burying dozens when a high-rise building under construction collapsed. Footage shared on social media from Myanmar’s second-largest city showed widespread destruction, raising fears that many were trapped under the rubble or killed. The magnitude 7.7 earthquake, with an epicenter near Mandalay in Myanmar, struck at midday and was followed by a strong magnitude 6.4 aftershock. The extent of death, injury and destruction — especially in Myanmar, which is embroiled in a civil war and where information is tightly controlled at the best of times —
Taiwan was ranked the fourth-safest country in the world with a score of 82.9, trailing only Andorra, the United Arab Emirates and Qatar in Numbeo’s Safety Index by Country report. Taiwan’s score improved by 0.1 points compared with last year’s mid-year report, which had Taiwan fourth with a score of 82.8. However, both scores were lower than in last year’s first review, when Taiwan scored 83.3, and are a long way from when Taiwan was named the second-safest country in the world in 2021, scoring 84.8. Taiwan ranked higher than Singapore in ninth with a score of 77.4 and Japan in 10th with
SECURITY RISK: If there is a conflict between China and Taiwan, ‘there would likely be significant consequences to global economic and security interests,’ it said China remains the top military and cyber threat to the US and continues to make progress on capabilities to seize Taiwan, a report by US intelligence agencies said on Tuesday. The report provides an overview of the “collective insights” of top US intelligence agencies about the security threats to the US posed by foreign nations and criminal organizations. In its Annual Threat Assessment, the agencies divided threats facing the US into two broad categories, “nonstate transnational criminals and terrorists” and “major state actors,” with China, Russia, Iran and North Korea named. Of those countries, “China presents the most comprehensive and robust military threat