For months now economic data have been moderate. Not a boom-time, but certainly not a recession. So far this week we’ve seen a slew of decent economic reports released. Starting the week on Monday was another jump in the ISM Manufacturing Index, this time to 57.3. That was well above the range analysts polled by Bloomberg predicted. The same day the Markit Economics PMI index also showed strong performance in manufacturing over the last month.
Next up on Tuesday motor vehicle sales exceeded expectation, both of domestic vehicle sales and total sales. The low-interest rate joyride continues at the automakers. No wonder Treasury has chosen this moment to finally unload its stake in GM.
Today the ADP employment report topped estimates at 215,000 jobs created. In another release investors learned the trade imbalance shrank, likely putting upward pressure on GDP growth for the quarter. Today’s report of new home sales showed a surge in buying that reached an adjusted annual rate of 444,000.
So will all this positive data force the Fed to rethink its low rate, high quantitative easing policies? Unlikely. The Fed has become the central bank version of the children’s phrase “I’m rubber you’re glue….” Except everything bad sticks in the Fed’s mind and everything good gets ignored.
The Fed is so focused on bringing down the unemployment rate that it’s forgotten the other part of its dual mandate, protecting the value of the dollar. Short-term, the dollar may not be under threat, but long-term there is only one possible outcome when massive liquidity injections are continued too long—inflation.
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