After continued improvement in the economic data Monday in the US, China, and India, Germany joined with an unexpected fall in Dec unemployment. The euro in turn is at a 3 week high (closing) and gold is following. Euro zone CPI for Dec rose .9% y/o/y, in line with expectations but the most since Feb ’09, albeit on an easy comparison. Fed Gov Duke last night repeated the belief of the FOMC that ‘inflation is likely to remain subdued’ due to the large output gap and high jobless rate. This Fed thesis remains even as the CRB index is near a 15 month high and inflation expectations are at a 17 month high, implied from the 5 and 10 yr TIPS. My readers know how I feel about Fed policy over the past 10 yrs so I didn’t bother chiming in on Bernanke’s disgraceful finger pointing to the lack of regulation and not monetary policy as the basis for the credit bubble but relying on economic models and not the market in setting rates has proven dangerous.