Inflation, up!
The dollar strengthened for a second day against the euro after a report showed U.S. consumer prices excluding food and energy increased for a second month, adding to optimism the economic recovery will accelerate.
The 17-nation European currency also weakened versus the yen before stress-test results for banks in the region. The Dollar Index had slumped earlier after Standard & Poor’s said there’s a 50 percent chance the U.S. will lose its top credit rating even if Congress reaches agreement on raising the debt ceiling to stave off a default.
“Having a slightly high reading of core inflation is something that grabbed the attention of the market today, which is our reason why the dollar should be benefiting after Bernanke’s speech that raised the idea that we could have more easing or the beginning of an exit,” said David Mann, regional head of research for the Americas at Standard Chartered Plc in New York.
If the Fed does decide to indulge in a third round of quantitative easing, that speck of inflation will take even higher interest rates down the road, to choke it off.
And all it takes is interest rates in the “normal” range of the ’90s before Washington’s interest payments jump from $200 billion today, to $800 billion sometime later. That’s bigger than defense, or Social Security, or Medicare/Medicaid. Just to cover the vig.
Oh, and that’s assuming we don’t add any more debt between now and then.
Heh.
Funny, yes?
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