$400
By Money Politic$ - Kudlow
Steve Forbes and Michael Darda want to see the gold price move down to $400 or less. So do other supply-siders. I agree. It’s not the fall in the exchange rate that bothers me, it’s the rising gold price, which could suggest a 3% handle on domestic inflation. I say could, since the Treasury yield curve has flattened by half this year, and the growth rate of commodity prices has already fallen markedly. Then there’s the current crash in oil prices.
But gold is still worrisome, and if the Fed sells treasury bills and bonds to take dollars out of money in circulation, gold price will fall. If I have any disagreement with some of my supply-side friends, it is because I am confident that Greenspan will do just this. The Fed’s basic target rate will be moved up at each of the next several meetings, in quarterly increments, and will probably land around 3% next spring. Then the central bank will probably stop. In other words, I refuse to panic, because I think the Maestro will cover any inflation with gradual policy restraint. But I also think the Euro central bank should be easing its money supply because they are still deflationary and, of course, are still high-tax, -spend, and -regulating. But, yes, gold is telling the Fed they are still a bit too loose. |
