Updated from 10:09 a.m. ESTEverything's coming up roses for the economy. Wednesday morning saw the release of four different statistics that were better than expected and reversed prior troubling reports. At the top of the list, the Consumer Price Index for December posted a 0.1% decline and climbed just 0.2% excluding food and energy. Elsewhere, housing starts rebounded from a steep drop in November, mortgage applications jumped after three weeks of declines, and new claims for unemployment insurance tumbled to the lowest level in a month, setting up conditions for stronger gains in payrolls this month. Despite the positive data and generally upbeat earnings news, major averages were down in the early going Wednesday. The Dow and S&P 500 were recently off over 0.3% each and the Nasdaq Composite was down 0.7%. Any
Speaking at the Council on Foreign Relations Wednesday morning, Fed governor Ben Bernanke said the CPI report shows inflation is "well under control," Bloomberg reported. A modest pickup in inflation wouldn't require that the Fed accelerate its economy-cooling rate hike campaign, according to the economics team at Wachovia Bank. "At this stage of the economic cycle it is normal for both inflation and interest rates to rise," they wrote. "The latest Fed statements reflect the observations by some of the members of the Federal Open Market Committee that inflation risks are on the upside." Core inflation should rise from 1.8% last year to 2.3% this year, with the Fed raising the fed funds rate to 3.75% by year-end and the yield on the 10-year going to about 5.1% without the economy coming unhinged, Wachovia projects.
Both increases came as rates on both fixed- and floating-rate loans declined for the week. Beneath the headlines, though, the mortgage market is still slowing. The index is 25% below its reading from a year ago as the refi index is 38% below year-ago levels. Rates are higher than a year ago, especially on floating-rate loans thanks to the Fed's five rate increases. On the employment front, economists had been dismayed by the rising tide of weekly unemployment insurance filings last month. Some suspected seasonal factors might be at play and those doubts appeared vindicated by Wednesday's report showing filing dropped to 319,000 from 367,000 the prior week. There was one troubling sign -- claims rose in California, Texas and New York, the three biggest states by population.