The Time for Change is Now Mike Larson Discusses Need for Tighter Monetary Policy in Latest Issue of Money and Markets



Mike Larson discusses the need for tighter monetary policy. Mr. Larson takes a closer look at why the Federal Reserve is going to have to confront inflationary threats.

It's time for tighter monetary policy. Mr. Larson has been arguing that they simply can't run monetary policy so loosely at a time when commodity prices are surging. They can't keep interest rates below the rate of inflation forever. And they can't just ignore rising prices and resort to that most dangerous of investor emotions, hope, that it'll all go away. Just consider the following:

- European Central Bank President Jean-Claude Trichet warned in no uncertain terms that the ECB is prepared to raise its main policy rate, currently 4%, in July. The ECB never followed the Fed's panicky policy path over the past several months. ECB officials have also been among the most hawkish of all those on the global stage. So you might be forgiven for dismissing Trichet's comments if he was out there by himself twisting in the wind. But he's not any more. As inflation explodes, embattled Federal Reserve Chairman Ben Bernanke is coming under fire from both Wall Street and Capitol Hill.

- Brazil raised its benchmark interest rate by half a percentage point to 12.25% in June; Russia just raised its benchmark rate by another 25 basis points to 6.75%. And most recently, the Reserve Bank of India boosted its repurchase rate to 8% from 7.75%. The Bank of Canada also halted its series of recent interest rate cuts, opting instead to keep rates unchanged.

- The Federal Reserve has now changed its ways. In a crucial policy speech in Boston, Fed Chairman Ben Bernanke said that:

"Inflation has remained high, largely reflecting sharp increases in the prices of globally traded commodities Moreover, the latest round of increases in energy prices has added to the upside risks to inflation and inflation expectations. The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as for inflation."

It wasn't just Bernanke sounding the alarm, either. Fed Vice Chairman Donald Kohn also noted that it's "very important to ensure that policy actions anchor inflation expectations."

"These speeches are the first signs that the Fed is seriously considering a shift from focusing on supporting economic growth to tackling inflation. Sooner or later they're going to be forced to confront inflationary threats head on, even if it means the U.S. economy suffers in the near term. The federal funds futures market is now pricing in the possibility of at least one interest rate hike before the end of 2008. That's a violent shift from several weeks ago, when additional rate CUTS were on the table," Larson states.

To read this issue online, please visit:

http://www.moneyandmarkets.com/Issues.aspxCentral-Bankers-Finally-Tightening-the-Screws-1883.

About Mike Larson and Money and Markets

Mike Larson joined the company in 2001, and has more than 10 years of experience researching and writing about personal finance, investing, and the housing and mortgage industry. In 2003, Mr. Larson was named associate editor of the company's monthly Safe Money Report. In this role, he is responsible for writing and editing as well as analyzing trading opportunities for clients. Mr. Larson is also a regular contributor to the company's daily e-letter, Money and Markets.

Before joining Weiss Research, Mr. Larson was a personal finance reporter for Bankrate.com where he wrote extensively on mortgage lending, banking, residential real estate, and Federal Reserve Board policy. His responsibilities included analyzing economic data and interest rate trends for a weekly column and developing rate forecasts for a regular index feature. Previously, Mr. Larson held positions at Bloomberg News and the Boston Herald.

Recognized as an interest rate and mortgage market expert, Mr. Larson's views have been quoted in the Washington Post, Chicago Tribune, Dow Jones Newswires, Reuters, Sun-Sentinel and the Palm Beach Post. He has also appeared as an investment expert to discuss the housing market on CNBC, CNN, and Bloomberg Television. His writing has been acknowledged by both the National Association of Real Estate Editors and the Massachusetts Press Association.

Among the first analysts to call the housing slide, Mr. Larson's new policy paper, "How Federal Regulators, Lenders and Wall Street Created America's Housing Crisis: Nine Proposals for a Long-Term Recovery" has received broad media coverage following its July 2007 submission to the Federal Reserve and FDIC. Mr. Larson holds B.A. and B.S. degrees from Boston University.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.





The Time for Change is Now Mike Larson Discusses Need for Tighter Monetary Policy in Latest Issue of Money and Markets