Cutting 75 basis points rather than the expected 100 basis points gave the Fed positive near term reinforcement from market participants:

• Dollar went up
• Food/fuel/commodities went down
• Stocks did ok, including housing companies
• Credit did ok

But it’s going to look to the Fed a bit like taking medicine: initial small doses have the desired effect, then things settle back, and it takes ever larger doses to keep moving the needle.

So now crude/food is moving back up, the USD is moving back down, stocks are doing ok, exports are booming, and the fiscal package is about to kick in.

For the Fed to keep moving the needle away from inflation it’s going to keep needing to not give markets all they are anticipating.

So with a 25 cut anticipated, they will realize they need to do no cut for a positive inflation response, and with no cut anticipated they need to hike, etc.

Credit markets will quickly get ahead of this and begin anticipating hikes.

The irony is higher rates will help support demand via the interest income channel.

And higher rates will support price increases via the cost channel.

Demand is being supported by increasing net fed spending and rising exports due to the reduced desires of non-residents to accumulate USD financial assets.

They no longer want to accumulate a net $60 billion a month of US financial assets (negative trade gap) due to the big 4 screaming fire in a crowded theater of previously content patrons:

1. Paulsen calling CBs that buy USD currency manipulators
2. Bush making it politically impossible for Muslim nations to further accumulate USD reserves
3. Bernanke giving inflation a back seat to ‘market functioning’ via deep rate cuts into a triple supply shock
4. Pension funds diversifying to passive commodity and non US equity strategies

MBAVPRCH Index (Mar 21)

More evidence of a turn in housing:

Mortgage applications spike after Fed action

(Reuters) The Mortgage Bankers Association’s mortgage applications index jumped 48.1 percent to a seasonally adjusted 965.9 in the week ended March 21, its highest level since early February.

An 82 percent surge in refinancing applications overshadowed a 10.6 percent rise in home purchase loan requests, lifting total applications from the previous week, when home loan demand sank to the lowest since end-December.

On a four-week moving average, which adjusts for volatility, total applications rose 11.3 percent, while the purchase index gained 3.1 percent and the refinancing index climbed 18.3 percent.

Crude oil creeping back up. One thing the Fed knows for sure is demand is strong enough to support food and energy price increases at dangerous levels, and they have also commented that they are being passed through to core measures.

MBAVREFI Index (Mar 21)

Another good sign for ‘market functioning’.

Durable Goods Orders (Feb)

Durable Goods YoY (Feb)

Looking weak month over month, but ok year over year.

Tax advantages that begin in May could be delaying reported investments.

Durables Ex Transportation (Feb)

New Home Sales (Feb)

Looks like a possible bottom. Last month revised up and this month’s number a bit higher than last month’s original reported number.

New Home Sales MoM (Feb)

Not strong but, as above, not a continuing collapse

S&P-CS Home Price Index (Jan)

S&P-CS Composite-20 YoY (Jan)

Still falling.  January/Winter numbers.  Lagging indicators.

Just kicked in in March.

Consumer Confidence (Mar)

Down sharply, a lagging indicator, and subject to sharp reversals.

House Price Index MoM (Jan)

Was still heading south in January.

Richmond Fed Manufacturing Index (Mar)

Quite a few March numbers are looking up.

ABC Consumer Confidence (Mar 23)

Another March number that shows some signs of life after a rough winter.