Gary Thayer
Gary Thayer
bond core energy factor fed focused good inflation liked low market news primary reading recognize traders
The bond market liked the inflation data. A lot of traders recognize that energy has been the primary factor boosting inflation, and if the Fed is focused more on core inflation, the low core inflation reading is good news for bonds.
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So core inflation is still rising slightly but doesn't appear to be a problem, and I think this is good news for the Federal Reserve . With energy prices declining it reduces the risk that fuel costs will be passed on to consumers.
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Energy prices are dropping, and consumer spending is holding up despite rising unemployment . These are encouraging things the market is recognizing.
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Fewer people are worried about jobs right now, more people think that jobs are easy to get, and I think that's supporting confidence despite the high energy prices.
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We had seen the daily and weekly sentiment surveys show a small dip in consumer attitudes at the end of January. Some of that could have been related to the late January rise in energy prices.
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The upturn in confidence is an encouraging sign that economic conditions are stabilizing after the hurricanes. Lower energy prices are helping, but the upturn in employment is also a plus.
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Policy-makers have been worried that rising energy costs could lead to higher prices for other things including higher wages and compensation, but it looks like companies are keeping their employment costs in check.
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It's a good decline in prices for a change. It appears the big drop in energy prices during November has brought the overall inflation rate down considerably.
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We were anticipating that we could see a little bit of an improvement in October because the rebuilding after the hurricanes appears to have started and energy prices have stabilized, but it appears that it will take a little longer for consumers to feel better about things.
consumers energy holiday looks numbers optimistic reduced relief spending until weak
Today's numbers show that consumers are not very optimistic about the economy. As a result, we will see consumer spending reduced until we see some relief on energy prices. If we don't get some relief, it looks like it will be a very weak holiday season.
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Inflation is creeping up, but it's not out of hand. I think that's pretty important. The bond market may have discounted a worst-case scenario over the last couple of months on inflation, and now maybe traders won't have to worry about the Fed moving too fast.
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It's still a good reading overall, but not quite as robust as we've seen in the last several months. The encouraging thing is that the employment component increased again. We are beginning to see businesses becoming a little more willing to hire.
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It's sort of a good news-bad news situation though, because if it gets out of hand, it can create other problems for the economy.
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The big number is the employment number on Friday. If that number comes in weak for the third consecutive month, views on the Fed are likely to change significantly.