Tag Archives: Inflation

Should We Be Alarmed?

Suppose somebody came up to you and shouted: “I have terrible news about the economy.  I think you should sell your stocks!”

Alarmed, you say: “Oh, my God.  Tell me more!”

And this mysterious stranger shouts: “Run for the hills!  The American economy just added 200,000 more jobs—more than expectations—and the U.S. jobless rate now stands at 4.1%, the lowest since 2000!”

You blink your eyes.  So?

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Inflation Impact

We all know that inflation gradually erodes the value of our dollars, and you’re probably aware that this is one of the main reasons for investing in the stock market.  If you hide your money safely under your mattress, it becomes incrementally less valuable each year depending on the inflation rate.  To keep pace, you have to find ways to make it grow at least as fast as the value of a dollar is falling.

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What Costs More

Inflation has been pretty benign over the last 20 years, right?  The U.S. Consumer Price Index has ranged from negative 0.4% in 2009 to a high of 3.8% in the awful 2008 economic year.  In 13 of those 20 years, the CPI was below 2.5%, which is hardly comparable to the double-digit inflation rates that people experienced in the 1970s and 1980s.

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Interest Rate Hike

The U.S. Federal Reserve Board’s Open Market Committee just raised the Fed Funds rate from 0.75% to 1.00%—the second rate hike in three months.  So what should you do with your investment portfolio in light of this change?

Nothing.

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Money From Heaven

Money from heaven

A term you’re likely to be hearing more of in economic reports is “helicopter money,” which might replace “QE” in our lexicon of Central Bank policy terms.

What is it?  “Helicopter Money” basically means dropping money out of the sky; the term is shorthand for a government printing money as a way to stimulate the economy, pay down government debt, create inflation as a protection against a threat of deflation—or all three.

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