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Safe Money Report

May 25, 2001

Top Fed Officials Clash Over Inflation -- Here's Our Two Cents

Alan Greenspan doesn't see any "inflationary zest" in the economy, but colleague Lawrence Meyer warned the Fed last week against "overshooting" and fueling inflation. Both, though, still see recession as the overarching threat to the economy.

While those two battle it out, it looks to us that stagflation is the most likely outcome for this economic slowdown -- we've already told you why the economy is barreling toward recession, here's why inflation is more of a concern than Alan Greenspan would lead you to believe:

The Consumer Price Index is up 3.8% in the first four months of this year. (In comparison, the CPI rose only 3.4% in both 1999 and 2000.)

Smart traders see inflation coming. That's why the yields on the benchmark 10-year Treasury note are climbing.

Meanwhile, energy prices are screaming higher at a 10.3% annual pace. And things are getting worse. Crude oil hit $30 a barrel on Monday, the highest price since February of last year.

But what should be a flashing neon "DANGER" sign for all investors is the fact that the price of gold, a natural hedge against inflation, has gone through the roof. It was up $13 last Friday ... $10.75 higher intraday on Monday ... and is up a total of 11.4% against the dollar since April 2. Wow!

Bottom line: Inflation is here, and it's going to get worse.

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