Witness two news headers, Friday pm: Reuters, referring to headline CPI - “US Inflation Contained.” Five minutes earlier, the AP, referring to the real world - “Consumers feel the pinch of pricier gas and food.”
The Fed can call the tail a leg all it wants. Some of us know it’s still a tail.
So instead of 35 pages of graphs and prose, let’s see if we can distill things a bit, capturing the recent journey.
First, very early Q4, forecasters had the US economy for H1 going nowhere. We felt otherwise. Forecasters later came to agree. By mid-Q1 they were, at first reluctantly, and then in a burst, flying in a new direction (crowd behavior at its best).
Next, mid-Q1 the same crowd, willfully blind as always (crowd behavior at its best) missed the next turn, not acknowledging 1) that Middle East unrest was not a blip but a revolution and 2) that higher crude prices would prove corrosive to growth. Why? For the single reason that an authority figure (always demanded by a crowd), in this case Bernanke, told them to relax.
Now, once again the same crowd of forecasters are slow to let go (crowd behavior at it best) but, like our trout about to “key in,” are beginning to embrace a new theory - that gasoline prices just might prove corrosive. Thus, they will continue to shave their US GDP estimates, something we predicted earlier that they would do.
So today we have countervailing forces. The US engine wants to burn on 7 of 8 and would, but for the impact of higher oil.
We intend to understand the outcome of this contest early on, to continue to spotlight economic reality for our clients before it becomes news.
Robert Craven
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