I’m trying to work out my morning schedule so I can get “Random Shots” up earlier in the day. This blogging thing is new for all of us, though, so please bear with me as I fiddle with the timing.

Lower Growth, More Inflation
I know there’s a name for this … if I could only think of it.

Oh wait, now I remember.

Sure, this is from way back in February, but it’s sometimes useful to look back at public officials’ pronouncements.

“I don’t anticipate stagflation,” [Fed Chairman Ben] Bernanke told the Senate Banking Committee.

Even in February the writing in terms of energy and food prices, and an economic slowdown, was on the wall. Certainly in terms of “inflationary pressures” the Fed was aware that energy prices were hurting consumers. However as of late February, it appeared the Federal Reserve was gearing up to fight the “stag” part of stagflation in the hope that the inflation mess would somehow work itself out. A story on page A2 of the Feb. 27 Wall Street Journal summarized a Feb. 26 speech by the Fed’s vice chairman, Donald Kohn, in which he said that while inflation news was “disappointing,” he didn’t expect the trend to continue. “In my view the adverse dynamics of the financial markets and the economy have presented the greater threat to economic welfare,” he said.

Also on Feb. 16, the U.S. Department of Labor reported that its Producer Price Index for Finished Goods—a measure of wholesale inflation—rose by 1% in January, mainly due to rising costs for energy and food. Testifying before the House Financial Services Committee on Feb. 27, Mr. Bernanke echoed Mr. Kohn’s words, suggesting that the Fed was aware of inflation risks, but was focused on stimulating the economy and mitigating downside risks.

The clear implication—or as clear as any Fed chairman seems capable of, at any rate—was that the Fed was not through cutting interest rates. And in fact, on March 18, the Fed cut interest rates again by 75 basis points, to 2.25%. Since last summer, when trouble in the credit markets reached a boil, the Fed has cut interest rates by 300 basis points. In response, the economy has slowed further and the dollar has weakened, although the dollar weakening trend seems to have abated of late.

The key question, even in March, seemed to be, what happens when “downside risks” to the economy are, in fact, higher prices?

Seems like that’s still a good question.

Reportage
This is a good week for hand-wringers; lots of reports coming out. Today the Conference Board said its index of leading economic indicators edged up 0.1% in April, a sign the economy isn’t grinding to a complete halt. It marked the second consecutive monthly increase, and April’s gain surprised some economists who had expected it to remain flat.

Stock prices, the interest rate spread, and housing permits made large positive contributions to the index this month, more than offsetting the sharp declines in average weekly hours and consumer expectations. In April, the six-month rate of decline in the leading index slowed to -1.2 percent (a -2.3 percent annual rate), from - 2.4 percent (a -4.7 percent annual rate) from July 2007 to January 2008. In addition, the weaknesses among the leading indicators have become somewhat less widespread in the last two months.

Later this week, be on the lookout for the Producer Price Index for April on Tuesday, minutes from April’s Federal Open Market Committee meeting on Wednesday and April’s existing home sales figure on Thursday.

The Chicago Way: Competitiveness
How classic is it that Chicago is hosting the 2008 National Summit on American Competitiveness?

The city is known for a special kind of entrepreneurship, a city where who you know is more important than any job qualification, or even whether you’re alive or dead.

This ought to be a hoot. Almost as much fun as reading this. . . .

You Don’t Say
The Middle East is running out of oil? Not to worry, we have plenty of advice for them.

This entry was posted on Monday, May 19th, 2008 at 6:41 pm and is filed under Monday's Random Shots. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.