Europe/inflation/QE3 coming

While we won’t get a definitive response from the Europeans this weekend on how best to deal next with their debt crisis, officials are still holding out hope that just a few extra days will complete the job. With the S&P 500 above 1200, the DAX near 6000 and the euro closer to 1.40 than 1.30, markets are assuming something. Whether what is put in place actually works or not is a different discussion, markets just want satisfaction now. While yields continue higher in France, Fitch said changes to the EFSF won’t threaten their AAA rating and Fitch has no plans to change their rating. German IFO business confidence fell to the lowest since June ’10 but was a touch better than expected. French business confidence fell to the weakest since July ’10. Canada’s Sept CPI rose 3.2% y/o/y, the 7th straight month above 3%. The world thus has inflation still high in Asia and Latin America, 3% in Europe and Canada, almost 4% in the US, and 5.2% in the UK as central bankers have fingers crossed that it won’t last. In the meantime, some Fed members want more money printing now. Voting member Tarullo last night said if things don’t get better in the next few months, “there will be a strong case for additional measures…I believe we should move back up toward the top of the list of options the large scale purchase of additional MBS…in order to provide more support to mortgage lending and housing markets.” It’s GroundHog Day and these academics at the Fed again want to enlarge their role of allocating credit and fixing prices. They need to toss out their econometric models.

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