“Inflation is a problem,” she said. Yet the problem isn’t excessive demand, rising wages, or a tight labor market, but “negative supply shocks.” Once the shocks wear off, the inflation rate can’t be sustained in the long run without a pick-up in wage growth, she said.

“There’s no textbook answer to what monetary policy should be doing at this time,” Yellen added.

Yes, there is – the mainstream says quite clearly ‘don’t add to demand during a negative supply shock. Or a triple negative supply shock. That will monetize the price increases and turn a relative value story into an inflation story.’

The FF rate is now below the year over year headline and core CPI; so, it’s easy for the Fed to now make the case the ‘real rate’ is negative and cutting it any could adversely alter long term employment and growth given the balance of risks between market functioning, inflation, and the output gap.

They also think they know that if markets are expecting a 25 basis point cut they need to do less than that to get a positive inflation response.

And, as before, they need to set a rate for the TAF and accept any bank legal collateral to be able to more effectively target LIBOR as desired.

• MBA Mortgage Applications
• Bloomberg Global Confidence
• Consumer Price Index
• Housing Starts
• Building Permits
• Industrial Production
• Capacity Utilization

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MBAVPRCH Index (Apr 11)

Survey	n/a
Actual	381.6
Prior	384.7
Revised	n/a

Holding in its new, lower range.

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MBAVREFI Index (Apr 11)

Survey	n/a
Actual	2866.0
Prior	2724.7
Revised	n/a

Doing ok in this prime time for resets, which are peaking and then falling off.

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Bloomberg Global Confidence (Apr)

Survey	n/a
Actual	14.54
Prior	13.08
Revised	n/a

Still down, but signs of a bottom.

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In my humble opinion, inflation is ripping, and the Fed’s in a very bad place. April’s food and energy price hikes, along with hosts of others, and the weaker USD all are pointing to an upward surge for prices on a forward looking basis.The Fed’s forecasting models should be showing higher inflation as well.And futures markets continue to be an unreliable forecasting tool for the Fed.

Consumer Price Index MoM (Mar)

Survey	0.3%
Actual	0.3%
Prior	0.0%
Revised	n/a

CPI Ex Food & Energy MoM (Mar)

Survey	0.2%
Actual	0.2%
Prior	0.0%
Revised	n/a

Consumer Price Index YoY (Mar)

Survey	4.0%
Actual	4.0%
Prior	4.0%
Revised	n/a

CPI Ex Food & Energy YoY (Mar)

Survey	2.4%
Actual	2.4%
Prior	2.3%
Revised	n/a

From Karim:

Headline/Core divergence->limited passthrough

• Headline 0.343% and stays at 4% y/y

• Core rises 0.152% (after 0.04% last month), showing limited pass-through from headline and even more limited pass-through from wholesale level (PPI from yday).

• Core rises from 2.3% to 2.4%, equates to about 1.9-2.0% on core PCE basis due to measurement differences

• Food up 0.2% and gas up 1.3%

• OER up 0.2%, apparel down 1.3%, vehicles down 0.1%

• Lodging away from home down 0.6% and medical up only 0.1%, a bit below trend

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Housing starts not looking good. The glimmer of hope is that prior months have been revised up for the last two reports, so there’s a chance this number could be revised substantially as well.

Housing Starts (Mar)

Survey	1010K
Actual	947K
Prior	1065K
Revised	1075K

Building Permits (Mar)

Survey	970K
Actual	927K
Prior	978K
Revised	984K

From Karim:

Housing data shows drag continuing with at least the same intensity

• Starts down 11.9%, boding poorly for current GDP

• Permits down 5.8%, boding poorly for future GDP

• Best news is not adding to inventories

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Industrial Production (Mar)

Survey	-0.1%
Actual	0.3%
Prior	-0.5%
Revised	-0.7%

May be due to exports, which are keeping GDP and employment muddling through

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Capacity Utilization (Mar)

Survey	80.3%
Actual	80.5%
Prior	80.9%
Revised	80.3%

Staying too high for the typical recession.