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May 27, 1994
Mortgage rates rattled in a narrow range, just about in the middle of the 8.50% to 9.125% spread which has held for nearly two months.
Decision-makers are seldom found in their Wall Street offices in the week before Memorial Day weekend. Which is a good thing, this year: the economic news was a long succession of danger signs. Had the wheels been present to make big trading decisions, rates might be a good deal higher by today.
The danger signs were just that: flashing amber lights, but no sirens, no "Dive! Dive! Take her down fast!"
Most civilian market watchers have learned to keep an eye on the monthly consumer price index, and its producer price companion. The trouble this week came from more sophisticated measures.
The Commodity Research Bureau index, known as the "CRB," is reported each morning, and often sets the bond market tone for the day. This week the CRB hit its' worst inflation-predicting level since the pre-war spike in oil prices in 1990.
However, the CRB is a little too sensitive to grain prices, which won't calm down until it's clear that Iowa won't spend the summer submerged, again.
Which leads to the next fancy index: the Journal of Commerce Industrial Materials Price Index ("JC"), published by the Center for International Business Cycle Research at Columbia University. You don't hear much about this index because it takes too long to say, or print; and when you're done announcing it, nobody can remember what you were talking about to begin with.
Anyhow, the JC (IMPI, CIBCRCU) has a good track record, and is signaling a return to four percent-plus inflation.
The next warning: in a revision of the January-March GDP (from 2.6% growth to 3.0%, too good for comfort) the "fixed weighted price deflator" says we're already above 3% inflation, and climbing.
The final danger signs are not indexes (fortunately). Oil prices, which held steady at $14/bbl all winter, are suddenly at $18 and rising. Demand is close to supply: prices rose quickly when a mere 500,000 bbl/day were knocked off line by another oops-a-daisy at the port of Valdez.
Last: the greenback. The dollar has been weakening against other currencies despite higher interest rates here. A weak buck is one of the surest of inflation indicators.
The unanimity of these signals supports the pessimists: the Fed is too late with too little.
Of course, Mr. Greenspan would be proved a genius if the economy would sink a little, and leave a couple million unemployed people treading water. The next read on jobs is Friday, June 3, and it has the power to save us or swamp us all by itself.
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