With the continued unrest in the Middle East and the unbridled speculation rampant in commodities' markets, the price of gasoline has soared and is bound for another steep hike next week.
What the higher cost of gasoline does, is hike inflation. But Bernanke has backtracked on his promise to taper off pumping money in the economy and just yesterday said that interest rates will remain low.
What that entails however, is that the higher the inflation goes without interest rates following, is that the value of a paycheck or money in deposits is devalued by the difference between the interest rates and the rate of inflation. Although long term rates have already jumped, and mortgage rates are now close to 5%, the short term rates, which are the rates of most accounts and deposits, will not see relief until the stimulus program is tapered off.
Although higher inflation is a sign that the economy is picking up, and is much better than the deflation feared by the Federal Reserve until a few months ago, it also signals the fact that the Fed Reserve will be hard pressed to stop trying to boost the economy.
That said, there are many skeptics who think that the economy has not fully healed, and that the 'economic betterment' is caused by a sudden demand on housing due to a reduction of inventory. That alone could cause a mini bubble, which when fizzled could put the brakes on growth once again.
Bernanke's second term is expiring in January of next year. At that time, Lawrence Summers could be eligible for the post, and has already signified his willingness to serve in the position of Chairman of the Fed Reserve. Lawrence was Treasure secretary during President Clinton's administration.
Partial Source : NPR news /7.12.13
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