Major averages were in a state of paralysis Monday as traders awaited some resolution to the conflict in the Middle East. Meanwhile, another conflict remains unresolved -- that between the Federal Reserve and inflation. The Fed said Monday that industrial production rebounded in June by more than most economists had expected. The 0.8% rise in June does not suggest a Fed pause, especially given the past three months of higher-than-comfortable CPI reports. Tuesday brings the producer price index, and Wednesday, the consumer price index and Ben Bernanke's semiannual monetary policy report to Congress. The fed funds futures market shows a 70% likelihood the Fed will raise rates again on Aug. 8. But the market is clearly concerned that the economy might fall into recession if the Fed keeps tightening. The fed funds futures market's recent reactions to the price of oil reveal that those investors believe the Fed has the same concerns about overshooting. They are banking that the Fed might sacrifice a bit more inflation to keep consumers above water. "The decline in the price of oil has boosted rate odds today, on the view that it would help the consumer to recover from recent strains," writes Tony Crescenzi, chief fixed income analyst at Miller Tabak and RealMoney.com contributor. The price of crude oil fell 2.1% to $75.39 per barrel Monday.
The Anecdote, Please
Some anecdotal evidence collected recently suggests that some measures of inflation aren't picked up by the official data. Or, given the lagging effects of high commodity prices on inflation data, maybe these anecdotes will show up in the numbers a few months from now.