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June 15, 2006

Feeling The Love

I normally would not expect news that starts like this, from Bloomberg, to be greeted with much enthusiasm:

Bernanke Says Oil May Slow Growth, Spur Inflation (Update2)

June 15 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said soaring energy costs may slow economic growth and spur inflation in the short term...

Oh, but it was. From Reuters (via USAToday):

Stocks jumped sharply Thursday as Federal Reserve Chairman Ben Bernanke said inflation developments "bear watching" but the impact of high energy costs on other prices has been limited and the economy will adjust over time.

What's the deal?

"The reason it's up isn't so much that (Bernanke) said anything, it's what he didn't say," said Jim Paulsen, chief investment strategist with Wells Capital Management. "Leading up to this people thought he might be more hawkish," given recent data showing an uptick in inflation.

And from the Wall Street Journal, today's bad news is good news entry:

Manufacturing data released by the Fed Thursday might have eased some concerns about inflationary pressure. The Fed said its measure of industrial production fell for the first time in five months, reflecting sharp declines in auto and machinery output and a dip in mining activity. It lost 0.1% in May, versus economists' expectations for a gain of 0.2%. Capacity utilization, a closely watched measure of inflationary pressure, was 81.7%, down from 81.9% in April and also less then expected.

Actually, it would be a mistake to make too much out of the industrial production report, as the monthly series is quite volatile:

   

May_ip

   

This month's dip follows two months of fairly good gains, and the 12-month growth rate still looks pretty healthy:

   

12month_ip 

   

There. Feeling worse now?  OK, if it's any consolation, a downward trend has to start somewhere, so maybe this is, in fact, the start of something small.  Feel free to rally.

UPDATE: Those who put their money where their expectations are in the market for options on federal funds futures were not moved to alter their assessments of the situation:

   

June_22

August_9

   

UPDATE II: Good round-ups of all the day's economic news can be found at The Nattering Naybob Chronicles and at The Skeptical Speculator.

June 15, 2006 in Data Releases, Energy, Federal Reserve and Monetary Policy, Inflation | Permalink

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