Long term interest rates are on the rise, which is a result of the high inflation levels we are currently seeing.

It seems that the news we are seeing today is all about the battles being fought.  Of course, the war in Ukraine is first on everyone’s mind, but it is not the only war.  For example, we are still fighting the war on COVID.  Every time we think we have this war won, it seems like another variant pops up. However, because of the availability of vaccines, the battleground has quieted somewhat.

The Federal Reserve is fighting a war against inflation. Long-term interest rates have risen significantly because of the existence of elevated levels of inflation. And the Fed is now pushing short-term rates up as well. Soon to come will be a war against the Federal Budget deficits, as COVID stimulus spending coupled with the COVID recession resulted in a deficit which has increased 33% to over 23 trillion dollars in the past two years. The annual deficits will fall going forward, but this heavy debt loan will cause the Treasury to hit the open markets to raise a tremendous amount of cash at the same time that the Fed has eliminated the purchases of bonds.

Back to the “real war” -- the markets continue to react strongly to the news coming from Ukraine.  Rumors of progress in peace talks typically causes stocks to rise, while oil prices interest rates fall. Heavy fighting causes the markets to react in the opposite direction. This has caused major volatility to say the least. Of course, as oil prices rise in reaction to the sanctions levied on Russia, the war on inflation becomes even more difficult to win.  Here is our wish for the spring – peace in Ukraine, death to COVID and lower prices everywhere.