Fed Falls Desperately Behind The Curve On U.S. Growth & Inflation - behind the curve

Fed Chair Janet Yellen missed an obvious opportunity to raise interest rates at yesterday’s Fed meeting. The U.S. economy is back. Instead of raising rates, the Fed said "economic conditions will evolve in a manner that will warrant only gradual increases" in interest rates and "inflation will rise to 2 percent over the medium term."

Both of these statements are misguided...

Inflation Is Rising

#CPI #Inflation #RateHikes

Contrary to what Yellen says, inflation is already heating up. The Consumer Price Index finally ended a 30-month streak below the Fed's 2% inflation target. (Note: We know the Fed's preferred inflation measure in the "GDP Deflator" which is currently at 1.6%. It's been rising lately with more to come.)

To make matters worse, our proprietary leading indicator suggests year-over-year inflation to hit 3, even 4% in the first quarter of 2017. That would definitely get the Fed’s attention. They are officially behind the curve now, McCullough writes, "we may need 4-6 rate hikes with inflation data like this."

Fed Falls Desperately Behind The Curve On U.S. Growth & Inflation - Yellen Dove 9.17.14

The U.S. Economy Is Growing

#GDP #ISM #Yellen #Fed

Why is the Fed dragging their feet? Good question. After U.S. manufacturing spent nearly two years in recession, the ISM Manufacturing survey hit a 27-month high yesterday. "Within the widely watched ISM report were some massively huge ramps," writes Hedgeye CEO Keith McCullough in today's Early Look.

Here's the rundown:

  1. “Current Production” ramped over 60 for the 1st time since Yellen missed #Deflation developing in late 2014
  2. “Employment” ramped to a 30-month high reading of 56.1 (at this time last year that reading was 46.2)
  3. “Prices Paid” ramped like no other ramp, to a herculean level of 69.0!

Fed Falls Desperately Behind The Curve On U.S. Growth & Inflation - 02.02.17 EL Chart

Dead Doves Walking

Yellen & Co. are falling desperately behind the curve on both U.S. growth and inflation. Then again, the Fed missed both growth slowing in 2016 and now growth accelerating in 2017. At least they're consistent.