When Good Economic News Goes Bad

Remember Bizarro World? That was the comic book land where bad was good, lies were truth, and ugly was beautiful.

At first glance, it appeared we were spending some time in Bizarro Market last week, with traders' universally negative reaction to the release of a handful of positive economic indicators that pointed to a healthier 2007. The reason, of course, is the widespread assumption that the Federal Reserve will look at the numbers and either raise interest rates -- or at the very least, refuse to cut them -- as a hedge against inflation.

There's a lot wrong with that thinking. To begin with, one set of indicators, or even two, is not enough evidence for the Fed to act. Indeed, a Fed vice president issued a warning on Friday against jumping to conclusions based on preliminary data. ...