Hot off the press:
Information received since the Federal Open Market Committee met in January suggests that economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months. Household spending has been increasing at a moderate rate, and the housing sector has improved further; however, business fixed investment and net exports have been soft. A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation picked up in recent months; however, it continued to run below the Committee’s 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. However, global economic and financial developments continue to pose risks. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to monitor inflation developments closely.
Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.
The news isn’t all good, although the market is moving upward and a 200 point advance by this weekend would not be out of the realm of expectations.
The problem? This morning’s CPI report had gasoline prices low. Already, as we mentioned in the column on Tuesday, Triple A’s authoritative Fuel Gauge Report shows that gasoline is already up more than 2-bits a gallon this month over last in many parts of the country.
At some point, those gasoline prices will start to bite – and the Fed (which relies on everything but food and energy data – for reasons that defy sane explanation – will have to come to terms with a rate hike.
Notably: Gold popped up $12, as well. We should see this as an initial move (done and in the can) then a corrective move while the big players load up, and then the big rally tomorrow and Friday it looks like from here.
But that’s just a guess and Ure on your own…