According to Bloomberg News, Two-Year US Treasury Yields rose 65 basis points (0.65%) this week to 3.02%, the largest such move since August 1982. The financial news was dominated by the specter of unrelenting and uncontrollable inflation.
Sanity is required during such periods of volatility and price action. To that end, we suggest that you read the address by Donald Kohn, Vice-Chairman of the United States Federal Reserve, the august body that sets US monetary policy. Mr. Kohn gave this address on June 11 at the Federal Reserve Bank of Boston’s 53rd Annual Economic Conference, Chatham, Massachusetts. You can find this address at the link below:
http://www.federalreserve.gov/newsevents/speech/Kohn20080611a.htm
As a student of financial markets, we find this to be a singularly critical commentary on today’s environment of high oil prices and high unemployment. Do not be discouraged by the obscure terminology of the “Phillips Curve” in this speech; focus instead on the broad economic framework laid out by Mr. Kohn.
Every reader should discuss the contents of this speech with his or her financial advisor. We think this address is that seminal and that critical to investing decisions at this time. This is true whether the reader lives in USA, India, UK, Australia or any other part of the world.
The last sentence reads “In the case of a shock to the relative price of oil or other commodities, this framework suggests that policymakers should ensure that their actions balance the deleterious economic effects of such a shock in the short run on both unemployment and inflation.”
Editor’s Note: We ventured in to this area at the suggestion of a reader and an old friend. This blog does not offer or plan to offer investment advice in any form or manner. Our objective is to simply bring to our reader’s notice, major events that are being or have been discussed in global media. The Kohn address was widely discussed on financial TV and in financial newspapers. We think it is important to bring the original speech to the attention of our readers. On a lighter note, we have to accept defeat in that we could not find a Bollywood song that would fit this topic. Can our readers help?
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Donald Kohn, Vice Chairman of the US Federal Reserve – A Must Read
