Wednesday, March 09, 2005

Well, I go away for a week and the whole world goes topsy-turvy. Greenspan is outed by Harry Reid for the political hack he has become. Lebanese protests force their pro-Syrian PM out of office, and then even bigger protests look to be bringing him back in. Oil hovers well over $50/barrel. Long-term US interest rates seem finally to be rising.

I'm especially interested in the sudden turn-around in US inflation sentiments. It was only a month ago that the market took the comments of Atlanta Fed President Jack Guynn to mean that the Fed was almost done with rate hikes. Now the talk is all about the end, all right, but of the "measured" rhetoric.
Fed policy makers this month may drop their commitment to lift the federal funds rate at a ``measured'' pace in favor of more ``flexible'' and ``hawkish'' language, which may push debt yields higher, John Herrmann, director of economic commentary at Cantor Viewpoint, said in a research note yesterday.
From January 2004 to January 2005, US personal consumption expenditures have risen at a quick 5.7% annual clip. Strangely, annual PCE inflation is still just 2.2%, though, and even lower over the last six months (1.9% annualized) and three months (1.4% annualized). For all the inflation talk, the durable goods sector in particular is still struggling to gain any pricing traction according to the PCE data.

Stephen Roach highlighted for us on Monday the doldrums in which US wages still wallow. Without rising real wages and with the threat of rising real interest rates, one might just finally begin to see that slowdown in overall US consumption begin to creep up on us.


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