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Inflation and Growth

April 13, 2012 – 5:04 pm

Inflation continues to be a non-issue for the U.S. economy and that allows the FED to keep its focus on extra low interest rates. QE3 may be off the table for the time being but without inflation the FED retains maximum freedom to do whatever they think necessary to keep our economy moving forward. They have two mandates, one to keep prices steady, in other words low inflation, and to bolster the economy. When they only have to worry about one of those mandates at a time their job is much easier.

Also, with China slowing its economic expansion to 8.1% as reported for the first quarter of this year, demand for all types of commodities is weakening. There is still demand but not nearly as high as it would be if China maintained their 10% or more expansion rate they have had for over 10 years. That bodes well for steady low inflation.

Being an election year the FED is likely to do nothing provocative. Neither will the politicians. The stock market likes non activity. It gives investors and traders a more certain future. Government intervention tends to cause disruptions. The same is true for steady prices.

Now if we can only get Europe to fix itself. That problem is a lot bigger.

Good Trading
Steve Peasley

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