Smackdown: Fleckenstein vs Yardeni

Interesting smackdown between Bill Fleckenstein and Ed "Y2K" Yardeni:"

"Even if the Fed can’t strip the inflation measurement of all
items going up in price, it has a built-in excuse, provided recently by
economist Ed Yardeni: One must decide whether prices are going up because of
"excess demand" or supply disruptions. As Yardeni wrote in his morning piece
April 11: "Raising interest rates when supply shocks may be the main reason for
higher commodity prices could be a mistake, especially when there is no evidence
that core-inflation rates are rising too."

Got that?

His explanation:
"Rising commodity prices resulting from supply disruptions — rather than driven
by demand — may take the steam out of the global boom, and slow U.S. consumer
spending and overall economic growth

See? Rising prices will correct
themselves if they’re due to supply disruption, an argument that he leans
toward. (Rising prices couldn’t possibly come from too much
money-printing, could they?) The Fed need do nothing. Thus, I believe
(for not just this reason, but others that I have articulated) that only one
more rate hike remains in the Fed’s quiver.

That said, I still think we
could see data that would persuade the Fed not to even give us that much.
If there is a nasty sell-off into earnings season, if we do in fact see some
negative economic data, coupled with problems in the real-estate market (none of
which would shock me), the Fed might be inclined to stand down on May 10. Either
way, the rally that we get when the Fed decides it’s done will be the last one
before serious downside action occurs.

Good stuff!


Does the Fed really ‘know’ what’s going on?
Bill Fleckenstein
MSN Contrarian Chronicles,  4/17/2006

Category: Federal Reserve, Fixed Income/Interest Rates, Inflation

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