Mainstream economics would put it this way:

• Inflation risk to long term growth vs short term growth risks

So on the inflation side:

• CPI year over year up to 4.1%

• Core CPI 2.4% year over year, 2.9% month over month (2.5% high end of Fed’s comfort zone)

• Headline PCE deflator 3.6% year over year, core PCE 2.2% (1.9% upper band of their target forecast)

• PPI up 6.3% year over year, core up 2.0% year over year

• Crude back to $91 after a brief hiatus (‘high eighties’- relax, only attempt at a pun)

• CRB testing new highs

• Grains near the highs

• Import prices up 10.9% year over year, ex petro up 2.9%, reversing years of pre 2003 declines

• Export prices up 6.0% year over year

• Prices paid/received remain on the rise in the various surveys

• $US index reasonably flat, but other currencies experience domestic inflation

• Not that anyone cares, but gold is at $913

• 5 year, 5 years forward implied CPI at 2.51%, vs 2.43% at December 18 meeting

And on the growth side:

• Housing reports remain weak through the winter months – permits still falling

• November construction spending up 0.1%

• Mortgage applications moving higher, 4 week moving average down 2.7% year over year, up 8.5% from November 2006 lows

• November income and spending (1.1%) came out strong, Oct revised up (0.2% to 0.4%), after December 18 meeting

• November durable goods on the weak side; December out on Tuesday

• ADP up 40,000, payrolls up 18,000, unemployment up to 5% from 4.7%

• Initial claims since meeting: 357K, 334K, 322K, 302K, 301K. Possible seasonal issues but no obvious weakness

• Continuing claims since meeting: 2,754,000; 2,688,000; 2,747,000; 2,672,000. Still a bit higher than before, but not moving up.. yet

• November trade gap out to 63.1 billion. December numbers released February 14

• Fiscal balance: Receipts up 5.7%, spending up 8.8% (with labor day distortion) fiscal year over year

• December vehicle sales 16.3 million, flat since August

• December retail sales down 0.4%, core up 0.1% month over month, year over year up 3.2%, core up 3.0%

• December industrial production flat, up 1.5% year over year

• GDP and ADP at the meeting, payroll forecast up 65,000 on Friday

• Fed cut 0.75% coincident with the Soc Gen liquidation related equity weakness

• February Fed Funds futures now at 3.09%, not fully discounting a 50 cut. Got all the way to 3.15 before stocks sold off.

Market functioning:

• LIBOR vs Fed Funds under control, 3 month LIBOR down 160 bp since December 18 meeting, TAF functioning well

• Mortgage spreads still historically wide, but trading, and absolute yields also down since Dec 18 meeting

• Mtg refi’s way up

Fiscal package is on its way!

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