US Fed Officials Watching Inflation Closely

US Fed Officials Watching Inflation Closely

$DIA, $SPY, $QQQ, $VXX

The Key element keeping the Fed from raising rates is inflation.

The Chairwoman and some FOMC members talk about world growth being a concern. If the 2.0% inflation target was being met or exceeded as well, it would be hard to see how the FOMC could do anything but raise interest rates.

The Big Q: Will inflation accelerate to the Fed’s desired level of 2% in the next few months?

The big A: Not likely.

Import prices rose in March, the 1st increase since June 2015. The uptick was largely due to a solid increase in fuel costs.

Excluding energy, prices were down a bit.

The cost of food and consumer and capital goods dropped, offsetting a modest increase in automotive products and industrial supplies.

On the export side, the hurting agriculture sector continues to bleed, as prices keep falling. Over the year, farm export prices have declined over 11%.

Inflation is well below the Fed’s target and it should remain that way at least until the Fall.

Energy prices soared last Spring and we are likely to see Y-Y numbers worsen in the next few months as a consequence.

Gasoline prices broke 2.90 last June and July and did not come down to 2.40 until October.

Expect that by September, the gasoline/energy price comparison might finally turn positive, at which point the headline number is likely to reach 2% or more.

Excluding energy, prices have been slowly moving North and should continue. Limited increases, if not declines, in import prices should keep inflation under control.

The USD has declined Vs peer currencies. Over the next few months, if the Buck’s firming holds, the fall in import prices should cease and we might see some minor increases.

For the Fed members who want to postpone the next move for as long as possible, Tuesday’s import price report provides some data to defend their stands.

As for participants, anything that implies the Fed is on hold is good news.

Crude Oil being above 40 bbl may be helping, but why do energy companies matter more than consumers?

Tuesday, the US major stock market indexes finished at: DJIA+164.84 at 17721.25, NAS Comp +38.69 at 4872.09, S&P 500+19.65 at 2061.72

Volume: Trade was above average with951-M/shares exchanged on the NYSE.

• NAS Comp -2.7% YTD
• Russell 2000 -2.7% YTD
• S&P 500 +0.9% YTD
• DJIA +1.7% YTD

Stay tuned…

HeffX-LTN

Paul Ebeling

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