There is growing nervousness in financial markets over the effect of inflation on the massive asset bubble that has developed in the past year as a result of the multi-trillion interventions by the US Federal Reserve and other central banks.

Wall Street sign (Sjoerd van Oosten/Creative Commons)

Inflation warning signals have started to flash with the report last week that US consumer price inflation rose by 4.2 percent in April from a year earlier.

While the Fed has insisted its ultra-easy monetary policies, which have fuelled the asset boom, will continue for the foreseeable future, there are fears that either interest rates in the bond market will start to rise or that the central bank will be forced to slam on the monetary brakes if price rises prove to be structural rather than “transitory” as it has maintained.

Speaking at a conference last Tuesday, Lael Brainard, a member of the Fed’s Board of Governors, said the central…

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