so, where are we headed?

BERNANKE ON THE HILL –

Today is Chairman Bernanke’s day in front of the U.S. Senate Banking Committee.  The market is now looking to the Fed for direction and all eyes will be glued to this testimony and the Q&A that follows.  The Fed’s most recent official communication on more quantitative easing has been that they “are prepared to take further action as appropriate to promote a stronger economic recovery.”  We will watch to see if this language changes at all.  We know the FOMC Members are confounded right now. They do not want to have to take more, unprecedented, unconventional action to spur on the economy.  But with the rest of Washington out playing duck-duck-goose, the Fed is the only policy-making group who can rise above politics.  There is an important reason for that – the Fed is not necessarily a democracy.  It will be important to remember, as we handicap the Fed’s moves in the coming weeks, that Chairman Bernanke is the most important voice to listen to.

CPI UNCHANGED IN JUNE, UP 0.2% AT CORE –

Consumer prices for the month of June were flat versus the previous month.  Excluding food and energy costs, core prices rose 0.2%.

On a year-over-year basis, headline inflation is up 1.7% while core inflation is up 2.2%. 

The drop in energy prices continues to lead the headline rate lower while a more modest impact has come from lower food prices.  The recent drought in the U.S. Midwest has caused some concern about corn prices which could put some upward pressure on food prices. However, all signs continue to point to inflation continuing to drop. At the core level, rents continue to be the biggest driver of higher prices [this should be interesting to see how this plays out over the next year!]

The Market Today ONLINE