Friday, June 13, 2008

Fed cred hammers consumer sentiment

No one writes it this way or seems to see it this way. But... the Fed's inflation fighting credibility is wreaking havoc with the economy. The FED is afraid it is losing its grip on inflation meanwhile the CPI headline spurts by 0.6% in one month and yet the core putters along at 0.2%. The core rate is up by just 2.3% Yr/Y and that is WITHIN the Fed's Comfort Zone while the headline gain of 4.2% Y/Y is just fine since it is not 'targeted.' Still the Fed COMPLAINS about inflation and getting expectations anchored.

The Fed has put an informal ceiling on the PCE core inflation rate of 2% but that translates into a 2.4% Core CPI and we are below that in May. So inflation is not leaking from the headline into the core. That's good news or maybe not...depends on how you see it...


...and U of M sentiment is STILL NOT rising even though this highly topical index comes as most consumers have gotten their rebate checks. Why no glee?

This is the 'Fed Cred as Woodshed' story.
Consumers are glad to get their checks. But they know the Fed is keeping inflation down and that headline prices are up by 4.2% Yr/Yr and that wages will not come close to it. High oil prices are taking them out to the wood shed and the Fed will not inflate away the pain. Consumers see what they are paying for gas and see their rebate check going to the local service station..yeah, fill'er up check the oil and try give me change on my rebate check please....

With tank fills easily at $80/per how far does a check for $600 go? Guess what! Consumers are not stupid. That's why the U of M sentiment index, weak as it was, fell again to an even more ridiculously low level. The housing market is in shambles, jobs losses continue, jobless claims are rising and announced corporate layoffs spiked last month. But hey here take $600 bucks - just once! And VOTE FOR ME IN NOVEMBER! OK???

Its not good time to be a 'consumer'. Housing prices are still falling, and the poor Iowans now have houses, not just mortgages, under water. This is a worrying set of reports on the economy we got today on... what do you know... Friday the 13th! They are worrisome reports and NOT for the reasons people thought when the day began. Consumers are feeling the stress. The Fed's tough love may be too gritty for a warm embrace. It may be what the economy needs, but the economy seems to be bearing up poorly. I remain a SKEPTIC about how much stimulus we will get from this mass mailing of the increase in the fiscal deficit called REBATE CHECKS.

How about you?

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