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Good News

February 19, 2010 – 11:40 am

As mentioned yesterday where the wholesale inflation number was surprisingly higher than expected the retail inflation out this morning was very low. It actually shrank for the first time since 1982 if you take out food and energy. With those two items it still was very low. Wholesalers can not pass through inflation to the consumers, at least not yet in the face of a very weak economy.

On the other hand last night the Fed raised one of the two interest rates it controls. This is the rate that the central bank charges for emergency loans to banks. It went from .50% to .75%. This is a sign that the Fed sees enough improvement in the financial sector to start tightening money though this is one of the most benign tightenings it could undertake.

Inflation and the Fed’s action is good news both for the economy and the stock market. Inflation is not a problem yet and the Fed has signaled a willingness to fight future inflation by making a move, albeit a minor one, early. It is also a sign that the dollar may not be as weak as feared. Of course this is only one small first step. Still the battered dollar is faced with a massive spending program which will continue to push its value down.

All and all this was a good week for the stock market and the economy. Only time will tell us if the correction is over.

Good Trading
Steve Peasley

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