The Producer Price Index, a measure of factory level inflation, jumped by 5.5% in December from December 2015. That was above the 4.6% expected by economists surveyed by Bloomberg and a huge jump from the 3.3% year-over-year rate recorded in November. The increase was the fastest in more than five years
Minutes of the December 14 meeting of the Federal Reserve’s Open Market Committee released today January 4 show that the U.S. central bank would like to stick by its plan to raise interest rates only gradually in 2017, but the minutes also reveal bankers worried that higher government spending on infrastructure and deep tax cuts could overstimulate an economy already running near full employment.
Global bond markets fell to the tune of a more than $1 trillion loss this week after Donald Trump’s win in the U.S. presidential election. The market value of the Bank of America’s Global Broad Market Index, which tracks 24,000 bonds around the world, fell by $1.14 trillion this week. The only other week that witnessed a drop of $1 trillion or more was during the June 2013 “Taper Tantrum” when bonds sold off after then Fed chairman Ben Bernanke threatened to reduce bond purchases.
The headline consumer price index, the government announced this morning, rose 0.3% in September. That follows on a 0.2% increase in August. The headline rate of inflation is now 1.5% year over year. That’s the highest rate of inflation for this number since October 2014. Core inflation–that is inflation excluding changes in the prices of energy and food, rose by just 0.1% in September after climbing 0.3% in August
It’s not like U.S. stocks didn’t have enough to worry about today. For the day the Standard & Poor’s 500 Stock Index closed at 2136.73, off by 1.24%. That was enough to push the S&P 500 below the 50-day moving average. The index has been flirting with that support level since early September. Maybe in this context the warnings issued today by Wall Street technical analysts feel like piling on–or maybe they are exactly what they seem, that is warnings
The Federal Reserve would like to see inflation at its target rate of 2% or so before raising interest rates but the central bank certainly doesn’t want to hold off on a rate increase for so long that inflation runs out of control. For August the core PCE, the key measure since it excludes volatile food and energy prices, was up 0.2%. That brings the year over year change in core PCE to 1.7%. That’s a slight increase from the 1.6% annual rate seen in July.
The Bank of Japan threw the country’s financial sector a bone today–not much more than that certainly. At its regular monetary policy meeting the Japanese central bank said it would keep its short-term policy rate at a negative 0.1% while working to keep the yield on the 10-year government bond near 0%
In the short term yesterday’s remarks from John Williams, head of the San Francisco Federal Reserve, were just another effort by Fed officials–including the heads of the Atlanta and New York banks, to keep the market from getting so comfortable with the idea that the Fed will stay on the sidelines that the U.S. central bank winds up with no room for an interest rate increase at any point in 2016–even in December.
