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Investors are always focused on the prospects for rising inflation. Since the

first of the year, the yield on the 10 - year Benchmark U.S. Treasury Bond

has risen from a yield of .913% to 1.721% as the economy added 916,000

new jobs in March. The institute for Supply Management’s index of factory

activity has risen to a near 40-year high. Manufacturers are warning that

supply-chain bottlenecks, increasing raw material costs and higher labor

expenses are beginning to add up. The $1.9 trillion Covid-19 stimulus bill

and a proposed $2.3 trillion infrastructure bill should give an added push to

an already strengthening economy.

These issues have raised inflation concerns. Jerome Powell, Chairman of

the Federal Reserve and Janet Yellen, Secretary of the Treasury, have stated

that these events are transitory. They have said that longer term inflation

should not be a concern and their intention is to keep short term interest

rates near zero. Are they right?

There are offsetting factors to the inflation and interest rate concerns.

While the U. S. economy is strengthening, other world economies, including

Europe and Japan, remain in recession. Foreign governments have forced

interest rates lower, in some cases to negative levels to stimulate recovery.

Therefore U.S. interest rates should be very attractive to foreign investors

with funds flowing to U.S. Treasury securities, perhaps keeping interest

rates here from rising significantly.

Only time will tell whether inflation will become a serious issue for our

economy and the markets. However, the risk is apparent and likely will

add to market volatility. We will remain watchful, keep fixed income

maturities short and portfolios balanced.

As always, I welcome your comments, questions and suggestions.


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