Gary Thayer
Gary Thayer
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The Fed will overlook the strength in the economy before Katrina and focus more on getting the economy back on its feet and probably will hold policy steady until we see how the economy is actually dealing with the shock of lost jobs and high gasoline prices resulting from Katrina.
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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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Confidence is up again -- to the highest level in over two years. Consumers are feeling better not only about current conditions, but also about prospects for the future.
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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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(The data are) suggesting the decline we've seen in the dollar over the last couple of years is not having an impact. It suggests the dollar may still need to fall to help narrow the trade deficit. But there's a risk to higher inflation if it does.
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The good news is that the inflation number was also revised down slightly but is still running higher than we saw a year or so ago,
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The PPI numbers generally have been running higher than the CPI numbers, showing that the higher production costs are not being passed on.
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Overall, confidence is still at a healthy level, up from where it was a year ago, but we did pull back a bit from the three-year high that we saw in June.
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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.
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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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The bond market had been thinking that the weak economic numbers that we've seen would cause the Fed to think twice about raising rates,