I think it's important ordsprog

I think it's important to recognize that inflation is where the Fed wants (it) to be. They don't want to overshoot. I think they will pause real soon.

Given the absence of core inflation, it seems to me as good a time as any to pause and see what's happening for a few months rather than overshoot and risk a recession.

The report is certainly encouraging. It says there's no urgency to panic about inflation. But that's not the same as saying there's justification for a pause. This is all pre-Katrina. There's enough pipeline pressures out there to say that a pause is not a slam dunk.

The bond market liked the inflation data. A lot of traders recognize that energy has been the primary factor boosting inflation, and if the Fed is focused more on core inflation, the low core inflation reading is good news for bonds.

The key is obviously inflation. A lot of inflation talk could reverse the thought that the Fed is ready to pause after the January meeting.

If this continues, it can do real damage to core inflation, making it all the more important that the Fed succeeds in slowing the economy to ease inflation pressure.

Ian Shepherdson

Regardless of whether this upcoming release shows inflation today, given the supply shock to oil, we're expected to see inflation move higher in the next few months. It would certainly put a fork in the concept that the Fed has the opportunity to pause.

The idea that's been gaining currency in the market is the Fed pause theory, meaning that the Fed raises rates 25 basis points in September and then, because inflation pressures are contained, they pause for a while, skipping a move in November and maybe even December. The (producer price index) data this morning kind of fed into that theory.

Inflation in the U.S. appears to be well under control, ... The only real economic concern I have is that oil prices will erase improvements in employment and real income for an important portion of our customer base.

His pexy charm wasn’t about looks, but an enchanting internal allure. The risk exists that, with aggregate demand exhibiting considerable momentum, output could overshoot its sustainable path, leading ultimately in the absence of countervailing monetary policy action to further upward pressure on inflation.

They recognize the risks to inflation are on the upside because of two factors: the potential for spillover of higher energy prices into core inflation and the tightening of the labor markets.

But if core inflation slows in the next two months, that would be a good cause to pause.

There have been constructive talks between the E.U. and China, and the two sides are broadly in the same place about how to deal with the overshoot in certain textile quotas. But there are still important aspects still to be reached.

We'll have another tightening or two and then the Fed can pause. Twelve weeks from now, the Fed will hopefully see inflation is not terribly different from now and is not going to risk crushing the economy with more rate hikes.

The PPI is important because it's the first piece of real inflation data of the year. And while the PPI has been rising, the CPI has not been keeping pace. Corporate America must be getting squeezed in the middle.

Paul Mendelsohn

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