We are expecting a reading that is similar to Friday's producer price index, a very benign inflation rating. Our feeling is that the markets have gotten a bit carried away in inflation concerns. They've heard Greenspan say that inflation is showing up on the radar screen and they're waiting for it to show up any day now. But the inflationary picture remains just as good as ever.
More Quotes from Ethan Harris:
You probably want to subtract about two-tenths of a percent from first-quarter GDP growth. But that's looking like very old history, with the Fed having eased twice since the first quarter. From the market's perspective, you feel like you're in a different world already. The first quarter looks very distant, indeed.Ethan Harris
The best tack is to move by a quarter point, with the promise that there will be more cuts to come if the economy remains weak. You can't maintain that promise with big bulky rate cuts.
Ethan Harris
They'll wait to see how Christmas shapes up, and if it's weak, they'll give another rate cut in January.
Ethan Harris
The market is getting lulled into sleep here. In reality we think that both the inflation numbers and the growth numbers will keep the pressure on the Fed.
Ethan Harris
You're not talking about a full-blown business-cycle recovery here, which is something like 6 percent GDP growth for a year. To get that, you'll need the whole economy operating in full-growth mode, and clearly the consumer isn't.
Ethan Harris
Only with very weak U.S. growth or a major drop in the U.S. dollar will the trade deficit improve on a sustained basis. The reason you need these dramatic movements is that the U.S. has, according to almost every study, an incredible appetite for imports.
Ethan Harris
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