The markets can ignore the inflation...but Bernanke can't.
My hunch is that Bernanke will keep on raising rates 25 BP ALL YEAR... Or until the stock market breaks down.
Here's why:
In the old days the FED raised rates to stop WAGE INFLATION.... Asset inflation in stocks bonds and real estate has always been beloved of the recent FED...
But consider: Nowadays wages and wage inflation are not the problem...asset inflation is. The inflation in houses and paper assets like stocks and bonds has been astronomic in the last 15 years.
So if the FED steps in to surpress demand for goods...it will be assets, like commodity prices, and not wages that are the REAL TARGET...
AND TARGETING ASSET INFLATION WILL TARGET STOCKS AND WALL STREET INDIRECTLY...AS THERE IS NO WAY TO DRAIN HYPERLIQUIDITY FROM THE ASSET MARKETS WITHOUT DRAINING THE "SWAMP" ON WALL STREET.
