Threading the Needle

Fed Pres Lockhart in a speech a few hours ago in Paris is summing up well what is the growing angst in the markets that the Fed is sowing the seeds for big inflation with their aggressive steps by saying, “there’s reasonable concern related to the growth of the balance sheet of the central bank in response to the economic difficulties we’re having, that this could over the long term fuel inflation if the monetary aggregates are not managed well and if the Fed doesn’t react at the right time to remove some of the stimulus.” We are thus relying on a Fed that thought subprime was contained at a loss of maybe $150b in 2007 to somehow reverse their massively aggressive initiatives at the exact right time.

The implied inflation rate in 10 yr TIPS today is at 1.40%, up 40 bps in the past two weeks and at the highest level since early Oct. Hopes of a bottom in the global downturn is lifting Asian stocks sharply. Claims data is out at 8:30.

Update: Data

Initial Jobless Claims totaled 652k, about in line with forecasts and up from 644k last week. Continuing Claims continued its march higher, totaling 5.56mm, 85k more than expected and at a new high.

The Labor Dept made some changes to their seasonal adjustments going back 5 years but they said it didn’t have much of an impact on the data. While initial claims have flat lined at a high level over the past few months, the continued rise in continuing claims is evidence of a still deteriorating labor market.

When the economy does improve, whenever that might be, the labor market will lag and therefore should not be looked at as a leading indicator.

Q4 GDP was revised for a final time at -6.3%, .3% better than expected but with just a week left in Q1 the data is old news.

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