Tuesday, March 30, 2010

Industrial metals prices signal strong global recovery

More signs of a V-shaped recovery: industrial metals prices are now up 110% from their late 2008 lows. The global economy must be doing quite well, and accommodative monetary policies from most of the world's central banks are not interfering with the ongoing rise in prices or the expansion of activity. So far I have seen no signs in sensitive asset prices of a slowdown in economic activity anywhere. How much more evidence does the Fed want to see before they take the "daring" step of raising short-term interest rates by a few notches?


Benjamin Cole said...
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Benjamin Cole said...

What if the rise in global industrial metals prices reflects booming demand and monetay growth in Asia, even while the US slogs along with perhaps weak monetary growth?

We have a global market for metals. It seems to me Fed actions might not be very important for the global maetal market. Other buyers are larger, such as China.

What if other nations are following stimulative policies, even if we are following contractionary policies? Then, global metal prices could rise, even as our economy suffocates for lack of money.

I'll grant, the US is still a huge player on the global economy. But, we are less huge every year.

I think Ben Bernanke would be well-advised to look at domestic job growth before cooling things off--if he can even control that.

If we have a globalized economy, then the global money supply must be key (by monetarist definition).
We could have a global inflationary boom, even as the US follows restrictive policies. For now, that is not probable--but within a few years, it will be.

It seems likely that what China, the Mideast and Europe do will swamp we what do.

The monetarists have an interesting dilemma ahead: If we agree that we should have a globalized economy (heads nodding affirmatively), and if we agree that intelligent monetarism is the best tool for a healthy global economy (more head nodding), then it follows we need a global monetary authority (head nodding--huh?)

Otherwise, we have many cooks in the kitchen, possibly following conflicting plans. Wild inflationary booms are possible, completely beyond the control of the Fed. Global contractions caused by too tight money by other nations would necessarily crush our economy too.

A global monetary authority? Oh, that will go over well in the Republican Party.

Christian S. Herzeca, Esq. said...

so scott, are you expecting a language change 4/30?

Scott Grannis said...

I'm prepared for a language change that comes sooner than the market is expecting. There's a reasonable chance it could come at the next FOMC meeting April 28th.

John said...

I think they could change the language anytime but they likely won't before we see more progress on the unemployment picture. If it comes next month it might happen. However, the fed is unlikely to make a rate hike move until after the election in November. They'll stay out of the political spotlight and do whatever they need to do afterward. I look for the first hike to come in December.