Markets & Finance

Stamps and Stocks


By Joseph Lisanti May 16 marks the anniversary of an event that few people even remember. On that day in 1971, the cost of mailing a first-class letter in the U.S. rose 33% to eight cents. In the 34 years since that increase, the price of a stamp has gone up another 362%.

Although not a perfect match, the increase in the cost of mailing a first-class letter is a close proxy for the change in the consumer price index over the same period. A significant part of that rise came in the inflation-plagued 1970s, when two oil shocks contributed to shrinking the purchasing power of the dollar.

Despite some recent softness, oil prices are up this year, too. But the latest price rise appears less a case of restricted supply and more one of increased demand. Strong economic growth in Asia, particularly China, is using up more of the available global supply of energy.

The subject of growth brings us to the recent "soft patch" in the U.S. economy. The latest strength in payrolls, a higher-than-expected April surplus at the U.S. Treasury, solid gains in retail sales, and a slight narrowing of the trade deficit all suggest to us that the U.S. economy is on better footing than many people thought.

We suspect that the Federal Reserve will consider that the soft patch, if it did exist, has passed into history. In our view, that makes the Fed likely to add another 25 basis points (one-quarter of a percentage point) to the fed funds target rate at its meeting at the end of June. We may even see a 50-basis-point boost later in the year.

There are some who fear that the Fed's actions will derail the stock market. We don't. The inflation fighters at the Federal Reserve know well what happened to the eight-cent stamp. They also know that while postage has risen 362% over the past 34 years, the S&P 500 has advanced more than 900%. Lisanti is editor of Standard & Poor's weekly investing newsletter, The Outlook


Monsanto vs. GMO Haters
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

Sponsored Financial Commentaries

Sponsored Links

Buy a link now!

 
blog comments powered by Disqus