Sunday, May 11, 2014

Sunday Night Futures

by Bill McBride on 5/11/2014 08:12:00 PM

A somewhat strange story on inflation in the WSJ: Markets Watch, Warily, for a Small Bump in Inflation

Normally, a move of a couple of tenths of a percentage point in the inflation measures wouldn't matter much to anyone. But the stakes are high now as Federal Reserve officials justify their plan to keep short-term interest rates near zero in part because inflation is running so far below their 2% objective.

Fed officials expect inflation to move from near 1% to 1.5% by year-end. If it moves up sooner or more than they expect, officials could consider raising rates sooner than planned.
Uh, the Fed expects inflation to move up towards 2%, and if it doesn't, the Fed might slow or stop the tapering of QE3 asset purchases.  In her testimony last week, Fed Chair Yellen said: "Looking ahead, I expect that economic activity will expand at a somewhat faster pace this year than it did last year, that the unemployment rate will continue to decline gradually, and that inflation will begin to move up toward 2 percent."
emphasis added

The most recent FOMC projections show PCE inflation moving up to 1.5% to 1.6% by Q4, but the Fed wouldn't raise rates sooner just because inflation rate moved closer to 2% this year - unless employment indicators improved significantly too.

And another sentence from the WSJ article:
The persistent low inflation has befuddled economists who thought Fed easy-money policies would spark rampant price gains.
Well, yes, some economists had the wrong model, but most economists realized that easy-money policies wouldn't lead to inflation in a depressed economy (I've been making fun of incorrect inflation forecasts for years). Eventually we will see a little more inflation - and an increase in inflation towards 2% would be good news - not something to watch "warily" for.

• At 2:00 PM ET, the Monthly Treasury Budget Statement for April. Note: The CBO's estimate is the deficit through April in fiscal 2014 was $301 billion, compared to $488 billion for the same period in fiscal 2013.

Schedule for Week of May 11th

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are up 5 and DOW futures are up 47 (fair value).

Oil prices were mixed over the last week with WTI futures at $100.07 per barrel and Brent at $107.89 per barrel.

Below is a graph from for nationwide gasoline prices. Nationally prices are around $3.62 per gallon (might have peaked, and only slightly above the level of a year ago).  If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by