New Column: The Street Gets Inflation Threat Backwards

Friday, February 10, 2006 | 12:29 PM

RealMoneyI have a new column up at TheStreet.com, titled  The Street Gets Inflation Threat Backwards.

It is an expansion of a few recent postshere:  Street Gets Inflation Exactly Backwards and Unemployment Levels and Labor Participation Rate.

Here's an excerpt: 

"In my opinion, the majority of economists, strategists and financial media -- the full "punditocracy" -- are exactly wrong on inflation. Indeed, I am hard pressed to think of another item of such grave economic consequence that most of the Street has so backwards.

The problem is, they are looking for inflation in all the wrong places. The inflation (ex-inflation) crowd has managed to ignore robust price increases across a variety of goods and services. Yet somehow they seem to have found inflation in the one part of the economy where there is almost none: wages.

One only had to see the market reaction to last week's data on non-farm payrolls, hourly wages and unemployment rate to realize how much the Street has gotten its panties in a bunch.

The Federal Reserve is acutely sensitive to wage pressure -- much more so than to the commodity price increases we have seen over the past five years. Maybe that's why the FOMC quietly announced that the upcoming meeting, previously planned for March 28, has been expanded to two days. It will now begin on March 27. (I'm sure the extra day isn't for more time to welcome aboard Ben Bernanke.)

If the Fed falls prey to the erroneous interpretation of wages and jobs, we could see a tightening cycle that goes far beyond what many on Wall Street currently expect. And that would bode extremely poorly for market prospects, both this year and next."

Regular blog readers will, of course, recognize many of the arguments in the column.


>

Source:
The Street Gets Inflation Threat Backwards
RealMoney.com, 2/9/2006 4:02 PM EST
http://www.thestreet.com/markets/economics/10267634.html

Friday, February 10, 2006 | 12:29 PM | Permalink | Comments (10) | TrackBack (2)
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» http://www.node707.com/archives/007053.shtml from Just a Bump in the Beltway
Barry Ritholtz has an important post up today for those of you with assets in the equity markets: "In my opinion, the majority of economists, strategists and financial media -- the full "punditocracy" -- are exactly wrong on inflation. Indeed,... [Read More]

Tracked on Feb 10, 2006 1:38:13 PM

» Playing the Market from Just a Bump in the Beltway
Barry Ritholtz has an important post up today for those of you with assets in the equity markets: "In my opinion, the majority of economists, strategists and financial media -- the full "punditocracy" -- are exactly wrong on inflation. Indeed,... [Read More]

Tracked on Feb 10, 2006 1:40:44 PM

Comments

Greenspan seems to think commodities are simply pricing in a huge terror premium based on his luncheon with Lehman's big hitters. Seems like a lot of those runners are hitting bids with the dives in some of these commodities.

This equity market seems surprisingly resilient from where I sit. Why fight the trend?

Posted by: Andy Nardone | Feb 10, 2006 2:54:07 PM

The comments to this entry are closed.



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