Premature Exit
I was on the road yesterday, so the usual service suffered…
The most important piece of news yesterday was FED’s decision to increase the discount rate by 0.25%, to 0.75%. The measure has a marginal real impact on the banking sector, but it could have large psychological impact.
The political and media orchestrated “recovery” pressures both the U.S. government and the FED to remove both fiscal and monetary stimulus. It is highly possible that Mr. Bernanke is heading toward an premature exit strategy, similar like in the 1937/1938 experience, which will lead to crisis relapse. It’s highly probable that the economy could not handle the withdrawal and would return to a recession (from which it has, to be frank, exited for a brief period of time only on a statistical basis).
On a economic data front we had the Producer Price Index announced yesterday and Consumer Price Index today. The PPI in January rose 1.4% vs. o.8% consensus and 0.2% prior reading. If we remove the impact of food and energy the producer prices increased 0.3% vs. 0.1% consensus and an unchanged prior reading. On the other hand the CPI in January rose 0.2% vs. o.3% consensus and 0.1% prior reading. CPI less food and energy fell 0.1% vs. o.1% consensus and 0.1% prior reading.
It looks like the pricing power is in the consumer side. Inflation is at the moment a pretty far fetched concept.
On the other hand Initial Jobless Claims again negatively surprised coming out at 473.000, 33.000 higher than the consensus and the prior reading. This high readings, this far from the recession start are a extremely uncommon event. The job losses will almost certainly continue in January.
Conference Board’s Index of Leading Economic Indicators rose 0.3% in January, bellow both consensus and prior reading. Judging from the figure the growth rate is slowing down.
Ben Bernanke, FED, FED Discount Rate, Producer Price Index, U.S. Consumer Price Index