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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: gerard mangiardi who wrote (39899)	6/15/2001 9:16:35 AM
From: IQBAL LATIF	Read Replies (1) \| Respond to of 50167

The headline CPI matched expectations in May, advancing by a monthly pace of 0.4% during the month. The core rate surprised on the downside, increasing by a monthly pace of 0.1% against expectations of a 0.2% monthly gain. The energy component almost doubled last month’s turnout, advancing by a pace of 3.1% during May, with the index for petroleum driving the surge with a 5.6% increase during the month. Food price inflation was also higher in May, posting a 0.3% monthly gain after April’s turnout of 0.1%. The higher headline rate reflects a surge in noncore elements, especially oil. The pleasantly sanguine rate of core inflation will not prevent the Federal Reserve from pursuing an expansionary monetary policy should it feel the need to address weakness in real activity. and this is good <<Reasons for Optimism By Mark M. Zandi 06/14/01 12:00 PM ET The current economic data remain dark. There is a reasonable probability that real GDP growth in the current quarter will be negative. Despite the worrisome data, however, for the first time since last fall, recession risks seem just a bit less ominous; and even if the economy is already in a recession, it will likely be short-lived. The optimism regarding the economy's prospects is largely due to the recently very aggressive actions by both monetary and fiscal policymakers. The Federal Reserve Board has cut the federal funds rate target five times this year, lowering the target by 250 basis points to its current 4%. While policymakers were open to criticism last spring for being too slow to react to the economy's developing problems (see Greenspan Should Move Now), it is difficult to fault policymakers' recent actions. Indeed, the Federal Reserve's efforts are resulting in improving liquidity. Money supply growth has accelerated sharply, with year-over-year M3 growth up over 11% (see chart above), a pace equaled only three other times in the last twenty years. While this is due in part to an increase in precautionary cash-holdings and indecision over where to invest cash raised in previous stock sales, it is also due in part to stronger demand for money motivated by the lower interest rates. This improved liquidity will ultimately support stronger spending and investment. >> but this is worrying in Europe.. <<Walking The Tightrope By David Ingram 06/15/01 8:30 AM ET Despite governing economies with radically different structures, central bankers in the U.S. and the euro zone are facing a common problem: mounting cost pressures. Inflation in the euro zone has risen to near 3% on a year-ago basis and is set to jump higher. In doing so, the inflation rate in the euro zone will surpass the ECB's target by better than a percentage point. In the U.S., consumer price inflation is over 3%, and the core rate remains persistently high (see chart below). Further, there are indications of mounting cost pressures as U.S. hourly compensation rose 6.0% on a year-ago basis during the first quarter, and unit labor costs posted a 3.4% gain. This represents a significant acceleration in unit labor costs over recent quarters. These emerging cost pressures may seem counterintuitive to many. After all, economic activity has clearly passed a cyclical peak for both economies, with the U.S. mired in a manufacturing and information technology recession and the euro zone's largest economy, Germany, all but in a recession. However, cost pressures that trail the peak in GDP growth have less to do with the cyclical position of the two economies, or even the comparatively low unemployment rate that each region is enjoying, than the abrupt manner in which the recent growth spurt ended. >>