On the one hand, inflation puffed up in January and February, an argument for Fed tightening. On the other hand, we have the sub-prime housing virus, by no means an economic positive (although it’s not the economic catastrophe the mainstream media is making it out to be).
Inflation-linked bond spreads have been widening, another excess-money signal. I don’t want to take the inflation threat too far, but...
Lurking behind all this is a historical footnote: It is possible to have slow growth and rising inflation — or too much money chasing very few goods. This translates to a whiff of stagflation, which is the Fed’s worst nightmare.
I don’t think there’s any need to desert the Goldilocks scenario just yet. There is in fact a reasonable chance the economy will surprise on the upside, as it has done so often in recent years.
Caveat emptor, Fed: When in doubt, don’t cut rates.
Turn off the nightly Larry Kudlow sis-boom-bah routine and utilize your own ability to see through the lunacy.
Kudlow On The Trade Deficit
Mr. Kudlow is chief economist of American Skandia Life Assurance Corp.