Nonetheless, if growth is in fact picking up worldwide--still a big if--it would hardly be surprising for prices of long-depressed commodities to rise, and for companies that have struggled with rock-bottom prices for their goods to test the market for pricing "improvements."
Whether any price increases can stick, or stick for very long, is the question. Slifer, for one, believes that the dawn of the Internet-based economy favors deflation in prices, not inflation, because competitive differences are so easily exposed by a few mouse clicks.
"I don't think the April inflation report means anything," Slifer maintains. Yet even he believes the Fed now has the excuse it needs to issue a stern warning about inflation, and about the possibility of a credit-tightening move.
The Fed isn't expected to raise its key short-term interest rate, now 4.75%, at Tuesday's meeting. The heavy betting on Wall Street on Friday, however, was that Chairman Alan Greenspan and cohorts will announce that they have adopted a "bias" toward raising interest rates in the future.
With long-term bond yields already at 12-month highs, isn't the horse already out of the barn? The short answer is, yes. The market almost always leads the Fed when the concern is higher inflation.
But in the neurotic world of the bond market, it's all about expectations.
An investor holding a 10-year, fixed-rate bond doesn't care so much about a short-term blip in inflation as he or she does about the potential for inflation to rise from 2% this year to 3% next year to 4% the following year, etc.
The Fed, therefore, has to keep harping about being vigilant. It must appear ready to raise interest rates, and slow the economy, before inflationary pressures build to the point where they can't be reversed without drastic action.
In the Internet economy, as Slifer notes, that whole idea may seem ludicrous. But the Internet economy doesn't mean much to bond investors. They're following the old rules, because that's an instinctual response. We've all just forgotten about them, because they've been sidelined for so long by worries about a new Great Depression.
In the near term, then, bond yields may well continue to climb. For the stock market, after another tremendous run-up in recent months, that may be a great excuse for a 10% or so pullback, which would take the Dow to 9,800 or so.
In the scheme of things, that's not exactly Armageddon.
Tom Petruno can be reached by e-mail at email@example.com. Petruno and other Times financial writers will be among the speakers at The Times' third annual Investment Strategies Conference May 22-23 at the Los Angeles Convention Center. For more information call (800) 350-3211 or go to http://www.latimes.com/isc.