Today’s update on consumer prices for November provides no cover for analysts expecting higher inflation to burst out any day now. Consumer inflation rose a mere 0.1% last month on a seasonally adjusted basis, the Labor Department reports. That’s down from 0.2% in October. Core inflation—price changes less the volatile food and energy sectors—is also quiescent, inching higher last month by only 0.1%. If there’s an imminent threat of inflation trouble, it’s not obvious in today’s CPI report.
WHAT’S THE DEAL WITH HIGHER RATES?
The Federal Reserve is forging ahead with its quantitative easing strategy for monetary policy. Although there’s a sea of critics who think the central bank should rethink QE2, there was no mention of the debate in yesterday’s FOMC statement, which explained: “To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November.”
NOVEMBER RETAIL SALES RISE FOR 5th STRAIGHT MONTH
Retail sales rose again in November—the fifth consecutive monthly gain, the U.S. Census Bureau reports. Last month’s 0.8% increase brings seasonally adjusted retail sales to just under the all-time high set back in November 2007, which was the last month before the start of the Great Recession. It’s getting harder to argue that consumer spending is headed for a new normal of self-imposed saving and austerity. It’s too early to dismiss that possibility, but it looks like a lesser risk at the moment.
READING ROOM FOR TUESDAY: 12.14.2010
►Senate vote sets stage for approval of tax-cut bill
Shailagh Murray and Lori Montgomery/Washington Post/Dec 14
Republicans and Democrats joined forces in the Senate on Monday to deliver the most significant bipartisan vote since President Obama took office, advancing a plan to extend tax cuts for virtually every American and to boost the economic recovery…The package would add $858 billion to deficits over the next decade, according to congressional estimates. The bulk of the cost – about $545 billion – would come from a two-year extension of income tax reductions enacted in 2001, as well as provisions to adjust the alternative minimum tax for inflation through 2011, sparing more than 20 million mostly middle-income taxpayers from sharply higher tax payments in the spring.
►Summers Warns Against Permanent Tax Cuts
Damian Paletta/Wall Street Journal/Dec 13
Top Obama economic adviser Lawrence Summers praised the White House’s tax-cut compromise with Republicans, but issued a defiant warning to Congress to not make some cuts permanent when major elements expire in two years.
OUT WITH THE OLD, IN WITH THE NEW (YEAR-END PREDICTIONS)
‘Tis the season of predictions. Although there’s never a shortage of forecasts, the calendar year’s finale typically shifts the prognosticating into overdrive. This year is no different. You can hardly swing a cat these days without hitting a fresh batch of prophesies for the year ahead. The trick, as always, is figuring out which forecasts have a decent chance of correctly describing the months and years ahead.
BOOK BITS FOR SATURDAY: 12.11.2010
● Uprising: Will Emerging Markets Shape or Shake the World Economy?
By George Magnus
Review via Financial Times
It is not often these days that an investment banker takes a sceptical view of emerging markets. Such has been the rush to put money into China, India, Brazil and the rest that caution has often been thrown to the wind…Magnus rightly warns that financial instability and financial euphoria often go together, with disastrous results.
● Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis
By Anatole Kaletsky
Summary via publisher, Public Affairs
In this provocative book, Anatole Kaletsky re-interprets the financial crisis as part of an evolutionary process inherent to the nature of democratic capitalism. Capitalism, he argues, is resilient. Its first form, Capitalism 1.0, was the classical laissez-faire capitalism that lasted from 1776 until 1930. Next was Capitalism 2.0, New Deal Keynesian social capitalism created in the 1930s and extinguished in the 1970s. Its last mutation, Reagan-Thatcher market fundamentalism, culminated in the financially-dominated globalization of the past decade and triggered the recession of 2009-10. The self-destruction of Capitalism 3.0 leaves the field open for the next phase of capitalism’s evolution. Capitalism is likely to transform in the coming decades into something different both from the totally deregulated market fundamentalism of Reagan/Thatcher and from the Roosevelt-Kennedy era. This is Capitalism 4.0.
READING ROOM FOR FRIDAY: 12.10.2010
►Obama ‘Confident’ Congress Will Pass Tax Deal
Scott Horsley/NPR/Dec 10
In the face of strong opposition from members of his own party, President Obama says that he’s confident lawmakers will eventually approve a tax cut deal he negotiated with congressional Republicans.
►Liberal Democrats: We won’t support tax deal without changes
Todd Spangler and staff/Detriot Free Press/Dec 10
Liberal Democrats in the U.S. House delivered a sharp rebuke to the deal between President Barack Obama and Senate Republicans to extend unemployment benefits and keep tax rates stable, saying Thursday that they wouldn’t accept the agreement without change.
JOBLESS CLAIMS CONTINUE TO TREND LOWER, BUT WITH A NEW CAVEAT
Last week we pushed the case for thinking that the recent decline in new jobless claims was more than a statistical glitch. That was a slightly harder sell after looking at the numbers through November 27, a week that suffered a hefty gain. But the broader trend still pointed down, we opined, a view that returned to the good graces of the statistical goods with this morning’s update. Yes, there’s encouraging news in the latest tally of initial jobless claims, which fell a solid 17,000 last week. But while the widely cited seasonally adjusted number offers fresh encouragement today, a new front in the war on job growth may be opening up once we consider last week’s seasonally unadjusted jobless claims total.
WILL DEMOCRATS DERAIL THE TAX CUT EXTENSION?
Is the agreement to extend the Bush tax cuts in trouble? There are new reasons to wonder today, which means that there are new questions about the outlook for any economic stimulus effect that the markets are expecting since the tax deal news hit the wires earlier this week.
TALKING UP INTEREST RATES & INFLATION FORECASTS
In his “60 Minutes” TV interview on Sunday, Federal Reserve chairman Ben Bernanke reminded the world that the central bank can raise interest rates in 15 minutes. The bond market is similarly endowed with the power to move the prices, and therefore yields, of fixed-income instruments in more than gradual increments, as this week’s trading reminds.