Inflation, Rate Hike, Economy

recently when i meet friends, the topic is always when will rates go up in the states.

my forecast is one of the two below:

• no rate hikes for quite some time;
• even if there are hikes, it would amount to no more than two hikes of 0.25% each

inflation only occurs under the following conditions:

1. unrestrained money printing
2. a young population
3. a strong economy, local and worldwide

the logic behind is there is no inflation on a continuous basis.  yes there was quite serious inflation for a short one or two years back esp in food and fuel, condition 1, other than that price rises in goods are not easy to achieve and stay without significant impact on the sales volume.

in fact because of such low rates, those who live on their assets do not have much return [unless a high portion is in stocks] if they hold much of their assets in cash form for the past few years and it is hard for them to spend more without any investment gains or appreciation in their assets. asset appreciation esp property only happens in major cities where there are more immigrants.

the decline in unemployment you see in the us is mainly due to creation of part time and temp jobs that do not contribute much to spending for the economy, the labour participation rate stays low which means those who cant find a job could not afford to spend.

the haves and not haves are highly divided in their spending habits, the haves are still a minor segment of the population and could not cause significant inflation alone as a group. do not forget the bulk of the population are the not haves.

just look at wal-mart and mcdonald stock prices before the Mc food incidents recently, their prices are going no where as their profits are stagnant, this points to the fact that many in the population do not have the power to spend.

EUROPE and the malaise
there isnt much ongoing in structural changes in europe which is why the economy stays low and it will stay low for a long while unless you could see euro reaches parity with usd which for the moment is fantasy.

with europe in danger of deflation, i dont buy the idea of rate hikes as us has to trade with europe and the us economy cannot grow at a fast pace. the only sectors in the states now growing at a frantic pace is the shale oil/gas exploration and some parts of manufacturing.

my friends and readers, are you convinced that rate hikes are very remote? if not, time will tell.