The US Federal Open Market Committee (FOMC) decided today to raise its target for the federal funds rate by 25 basis points to 4-3/4 percent. Other key phrases and sentences from the FOMC statement were as follows:

  • “Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace.
  • “… the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labour costs in check, and inflation expectations remain contained.
  • “… possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures.
  • “The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance.”

“It’s more hawkish than expected”, squawked one pundit on Bloomberg. A calmer person said: “Everyone expected one more rate hike [after today] and that is sortof confirmed now”. A grumpy, older Henry-like person said something like: “Bernanke is a wimp and hasn’t yet established his cred as an inflation fighter”.

And in Australian news, the SMH revealed on Monday that Australians are now wealthier than they have ever been.

Economics correspondent John Garnaut says that, according to the Treasury journal Round-Up, “The surging share market supplanted the housing boom last financial year to drive average wealth to $305,000, after subtracting debts…More wealth was accumulated in the six years to last June than in the previous 39 years.”

In today’s Oz, economics correspondent David Uren states that: “Margin Loans, which provide funds to buy shares but require the borrower to pay back the loan if the share price falls, now total 16.5 per cent of all personal borrowing. According to Reserve Bank figures, at the end of last year Australians had $19.9 billion worth of margin loans – up from $15.2 billion a year earlier and almost double the 2002 figure of $10.8 billion.”

It seems that the surging share-market combined with the great unwashed’s increasing propensity to invest in shares means that wealth levels are continuing to rise. If Australian investors don’t fall prey to short-sighted greed and continue to be intelligent in paying off loans, then their wealth will continue to skyrocket. Henry says: “Beware the Ides of April”.

Read more at Henry Thornton here and here.

Peter Fray

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