Mainstream economics would put it this way:
- Inflation risk to long term growth vs short term growth risks
So on the inflation side:
- CPI year over year up to 4.1%
- Core CPI 2.4% year over year, 2.9% month over month (2.5% high end of Fed’s comfort zone)
- Headline PCE deflator 3.6% year over year, core PCE 2.2% (1.9% upper band of their target forecast)
- PPI up 6.3% year over year, core up 2.0% year over year
- Crude back to $91 after a brief hiatus (‘high eighties’- relax, only attempt at a pun)
- CRB testing new highs
- Grains near the highs
- Import prices up 10.9% year over year, ex petro up 2.9%, reversing years of pre 2003 declines
- Export prices up 6.0% year over year
- Prices paid/received remain on the rise in the various surveys
- $US index reasonably flat, but other currencies experience domestic inflation
- Not that anyone cares, but gold is at $913
- 5 year, 5 years forward implied CPI at 2.51%, vs 2.43% at December 18 meeting
And on the growth side:
- Housing reports remain weak through the winter months – permits still falling
- November construction spending up 0.1%
- Mortgage applications moving higher, 4 week moving average down 2.7% year over year, up 8.5% from November 2006 lows
- November income and spending (1.1%) came out strong, Oct revised up (0.2% to 0.4%), after December 18 meeting
- November durable goods on the weak side; December out on Tuesday
- ADP up 40,000, payrolls up 18,000, unemployment up to 5% from 4.7%
- Initial claims since meeting: 357K, 334K, 322K, 302K, 301K. Possible seasonal issues but no obvious weakness
- Continuing claims since meeting: 2,754,000; 2,688,000; 2,747,000; 2,672,000. Still a bit higher than before, but not moving up.. yet
- November trade gap out to 63.1 billion. December numbers released February 14
- Fiscal balance: Receipts up 5.7%, spending up 8.8% (with labor day distortion) fiscal year over year
- December vehicle sales 16.3 million, flat since August
- December retail sales down 0.4%, core up 0.1% month over month, year over year up 3.2%, core up 3.0%
- December industrial production flat, up 1.5% year over year
- GDP and ADP at the meeting, payroll forecast up 65,000 on Friday
- Fed cut 0.75% coincident with the Soc Gen liquidation related equity weakness
- February Fed Funds futures now at 3.09%, not fully discounting a 50 cut. Got all the way to 3.15 before stocks sold off.
Market functioning:
- LIBOR vs Fed Funds under control, 3 month LIBOR down 160 bp since December 18 meeting, TAF functioning well
- Mortgage spreads still historically wide, but trading, and absolute yields also down since Dec 18 meeting
- Mtg refi’s way up
Fiscal package is on its way!
♥