Stuart Hoffman
Stuart Hoffman
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The bottom line is it is a very solid report, but with continued inflationary pressure building up, it will make it easy for the Fed to conclude (Tuesday's meeting) with a quarter-point increase,
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The stock and bond markets are looking at the report and seeing the signs of strength, and they know the Fed is doing the same.
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What it does show is that the Federal Reserve has more work to do.
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This is a very weak number and well below what everyone expected. It's not the kind of report the Fed likes to see, but I think they'll recognize that the economy is already rebounding and raise the federal funds target rate to 4.5 percent.
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I think the Fed will move a quarter of a point at the end of June, then they may pause. I don't think they're going to stop. I don't think the ball game is over. I think if we are in the late innings and it's still a tie between the risks of higher inflation and slower growth, as Dick Fisher did say, this could go into extra innings.
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I think the Fed will look at the core number and determine that it was understated, and still raise rates by a quarter-percentage point at the meeting on November 1.
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The underlying message here is that the Fed is rounding for third and heading for home plate. But they are not finished playing yet.
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These are exactly the kinds of things the Fed likes too see. Signs of a slowing in housing and still-contained inflation are the kinds of numbers that speak to the Fed stopping in May, making that their last rate hike.
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Inflation, it's been a clean sweep for July. We learned earlier this month wages were unchanged, yesterday producer prices fell again, and this morning you're right on the money, relatively benign consumer price inflation report. No problem.
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It's not a good sign when delinquencies rise, There are enough other positive things in the consumer sector to say this is not a signal for some significant retrenchment ... that could threaten the economy.
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Stocks and bonds rallied at first, but now have hemmed down. Stocks are coming off a superb day yesterday, so that may be a little profit taking.
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This is in spite of gasoline rebounding 10 to 15 cents in January. This also squares with the jobless claims data.
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It was a good report right through. As you look through the report there is a noticeable absence of inflation on a broad basis. The numbers, if anything, are steady to lower on inflation and show that it just isn't at all a problem for the economy or the Fed.
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It's clear that job growth in the last three months has been as slow as it has been in quite a while. It is a picture of a somewhat slower or weaker job market.