Michael Gregory
Michael Gregory
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There is no question that the economy is slowing, but it's not exactly shrinking, either, ... We are seeing the first tentative signs of slowing, but you have to remember that we are starting at a very high base of growth. The Fed will still err on the side of caution and restraint.
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We're seeing signs that consumers are starting to feel the impact of persistently high gas prices. As prices stay high we're going to see the impact broaden from discount to more mainstream retailers.
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The question for the Fed is what inflation will look like in 12 to 18 months. The U.S. economy is still growing fast enough to use up slack that's out there in the economy, and that could present an inflation threat down the road.
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Despite the fact that energy prices are creeping up and housing continues to crumble, surveys suggest job gains are providing an offset for confidence. The potential is there for consumer spending to remain resilient.
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Inflation is not a problem right now; that is not really what the Fed is paying attention to.
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That's certainly going to be the critical number. A number indicating employment growth, particularly increases in wages, could prompt the Fed to move by the end of this month.
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The fact that we've had some decent growth, as long as it isn't associated with inflation risk, is generally good for equity markets. But we did see that wage pressure remains elevated. From that perspective, (the report) is neutral.
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the Fed is going to want to take the more cautious road. Two months is an awful long time to wait to react to evidence, particularly if that evidence indicates the economy is starting to heat up again.
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The Canadian currency is considered a commodity currency. When commodities prices are up, investors tend to have exposure to the currency.
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Claims are pointing to firm, if not firming, conditions in the labor market. Corporate profits are just huge and businesses are in a position to expand.
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As far as the Fed goes, it really isn't inflation on the ground that's a concern, it's inflation down the road. For a very long time, they've offset that with global concerns, but there doesn't appear to be any more world crises to worry about.
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The Bank of Japan is taking a little step towards trying some remedies, ... now appears to be more conducive to helping them.
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Do they really want to end the party? Of course not, ... They want to tone the party down before something gets broken or damaged, or worse, before someone gets hurt. It's similar to a marathon: if you pace yourself properly you can get to the end without overexertion. That is what the Fed is trying to do here.
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It's only a matter of time though before the consumer succumbs to weakening housing and higher gas prices, and I think we'll see that by the third quarter.