Economic guru Ron Insana warns that the Federal Reseevr faces a return of deflation despite its aggressive monetary policies because crude oil and other commodity prices are collapsing.
The CNBC and MSNBC contributor warns that food prices just may be the next to skyrocket after Amazon's foray into groceries.
“Amazon's acquisition of Whole Foods was, and will be, inherently deflationary. The operating efficiencies that Amazon brings to the grocery, and home delivery, business will further drive down prices and eventually spread to other areas of consumer goods,” the author of four books on Wall Street recently wrote for CNBC.
“Deflation in retail, as structural changes drive many sellers of goods out of business, means that retail real estate will deflate, as well, as surplus stores are shuttered and stand-alone stores are re-purposed for other uses over time,” he explained. Deflation is commonly defined as a sustained period of falling consumer prices.
“And that is just one element of a return of deflation that we assumed the Fed had tamed with its aggressive interest rate policies over the last nine years,” he wrote.
“Overall, the latest batch of economic numbers have been punk, not nearly strong enough to warrant further tightening by the Federal Reserve, despite promises to do so,” he wrote.
The Fed successfully fought financial deflation in the wake of the credit crisis in 2008/09. But technological deflation is making a comeback, which will limit price increases in consumer goods and services for many years to come.
“There is a risk of financial deflation rearing its ugly head again, if price deflation in commodities continues and forces resource companies to retrench again,” he wrote.
To be sure, the outlook for inflation and the future of financial stability are emerging as dueling concerns at the heart of a debate at the U.S. central bank over how fast to proceed on future interest-rate hikes, Reuters explained.
That is a change from years past, where high unemployment was at the top of the Federal Reserve's worry list for the U.S. economy. But with the U.S. unemployment rate now at 4.3 percent, most Fed officials are now convinced that nearly all Americans who want jobs can and do get them.
That is a main reason the Fed last week raised its target range for short-term interest rates for the second time this year, even though recent inflation readings have drifted away from the Fed's 2-percent target, confounding expectations based on history and theory.
Fed Chair Janet Yellen expressed confidence inflation would eventually perk up, but some policymakers cast doubt.
Chicago Federal Reserve Bank President Charles Evans on Tuesday became the latest to express worries on that front, saying he is increasingly concerned that a recent softness in inflation is a sign the U.S. central bank will struggle to get price pressures back to its 2 percent objective.
Speaking to reporters after a speech at the Commonwealth Club of California, Dallas Fed President Robert Kaplan had similar concerns, saying he wants to wait for more evidence that the recent retreat in inflation would be temporary.
And though Kaplan said he retains an "open mind" about how many more rate hikes the Fed should deliver this year, he also highlighted an additional worry: the likelihood in his mind that even when fully healthy the U.S. economy will need interest rates to stay below 3 percent.
With the 10-year Treasury yield barely above 2 percent, he said, markets are forecasting sluggish growth ahead, and the Fed should be "careful" about lifting short-term rates, now between 1 percent and 1.25 percent, much further. Kaplan, like Evans, votes this year on monetary policy.
(Newsmax wires services contributed to this report).
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