This morning's economic data release showed a surprise increase in inflation as the Producer Price Index reported a significant increase in costs for manufacturers due to rises in costs for healthcare and other service sectors. The gains were the biggest in more than a year.
The Obama Fed kept rates at near zero for a decade, while the Obama administration doubled the sovereign debt of the United States in the process. President Trump has called for continued low rates in an attempt to juice the economy and looks to begin dealing with the debt and budget deficit in the second term. Being dealt a bad hand, Trump to his credit realizes the only way out of the morass is trough much higher economic growth.
However, at some point, the market must realize inflation could come roaring back under such conditions. We may be seeing the beginnings of this phenomenon now with this morning's inflation numbers.
The Federal Reserve reduced short term interest rates three times in the last year and plans to keep rates on hold through the end of December. However, the Fed has been once again increasing its balance sheet to fund liquidity issues and it's definitely NOT QE.
Producer Price Index (YoY) (Jan) printed at 2.1% vs 1.6% consensus estimate.
Building Permits (MoM) (Jan) printed at 1.551M vs 1.45M estimate.
Housing Starts (MoM) (Jan) printed at 1.567M vs 1.425M estimate.
Producer Price Index ex Food & Energy (MoM) (Jan) printed at 0.5% vs 0.2% estimate.
Producer Price Index ex Food & Energy (YoY) (Jan) printed at 1.7% vs 1.3% estimate.
Producer Price Index (MoM) (Jan) printed at 0.5% vs 0.1% estimate.
Building Permits Change (Jan) printed at 9.2% vs -0.1% estimate.
Housing Starts Change (Jan) printed at -3.6% vs -30.7% estimate.
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