Interest Rate Roundup

Wednesday, November 14, 2007

The latest on the economy ... and Fed projections

We're getting a fair amount of economic data this morning. So let me try to recap it quickly:

* The Producer Price Index rose just 0.1% between September and October, compared with forecasts for a 0.3% increase. The "core" PPI was flat, vs. a 0.2% forecast. However, the PPI is up 6.1% year-over-year, the highest reading since September 2005 (when the gain was 2.9%). The core PPI is up 2.5%, also the fastest since 9/05.

* Overall retail sales gained 0.2% in October, and 0.2% if you exclude autos. That was roughly in line with projections. Furniture sales were down 0.9%, reflecting weakness in the housing market, while food and beverage and gasoline station spending both climbed (0.4% and 0.8% respectively). This likely reflects inflation in food and energy prices. Spending in other categories (general merchandise at -0.1%, health stores at +0.2% and clothing at +0.1%) was relatively subdued.

* Meanwhile, Federal Reserve Chairman Ben Bernanke is talking about Fed economic forecasts today. He says the Fed will now publish forecasts about overall future inflation (as opposed to just "core" inflation), and will release its official forecasts quarterly (up from twice a year currently). There will also be some more detail added about the projections of individual Fed members.

The overall impact on the bond market? Prices are down and rates are up. The long bond futures were recently off a half-point, while 10-year note yields were recently up about 4 basis points to 4.30%. Stocks are up, while the dollar is modestly lower against some currencies (euro, Aussie), but up against others (Japanese yen, British pound).


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