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March 15, 1991
Interest rates are rising this morning, but are net lower than a week ago.
Inflation news is giving bonds a hard time this morning. The "core" rate of wholesale inflation rose .4% in February, despite an overall drop of .6% in the Producer Price Index.
February Retail Sales rose .8%, but Industrial Production fell .8%, and factory Capacity Utilization also fell by .8% to 79.1%.
We still do not have a good picture of the economy. Bonds improved this week on news of "bad" car sales, and declined when Retail Sales rose because of "healthy" car sales. Same cars, same month's sales.
Stormin' Alan Greenspan opted for direct action this past week. No more of this nambypamby wait for the markets to interpret how the Fed is going to interpret economic data. Let 'em have it straight from us.
After a month of hinting "no plans to ease, the economy may have bottomed," the Fed eased last Friday. The bond market crashed a point, worried that operation Greenback Storm would guarantee renewed inflation after the recession.
Last Friday also guaranteed confused homebuyers: prime fell, while mortgage rates rose.
Troubled by an unhappy bond market (and even unhappier politicians who want easier easing), Chairman Greenspan returned to basic operations (Potomac Fog). When the Chairman was asked what the chances were for more easing, he replied: "I think there is certainly more now than there was a few months ago."
Bonds had a great day. No matter how worried a bond investor may be about future inflation, don't fight an aggressive Fed. Of course, assuming the Chairman really means to be aggressive.
During the last month, mortgage rates have held in a narrow range at par between 9.50% and 9.625%. But don't mistake the narrow range for calm markets. Rates have lurched back and forth, sometimes as much as three quarters of a point discount in a single day.
Mortgage rates are due to blow out of this range soon, either way. The guess here continues to be an upside break, but I don't have much company.
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