If you recall, I recently highlighted the reacceleration of M2 growth:
…M2 reaccelerated in 2006 and is trending higher. This likely means a higher, not lower, Fed Funds rate in the future.
Nevertheless, many have been heralding the “Goldilocks” economy of low, stable inflation and growth around potential. The latest inflation data, however, suggests that Goldilocks is a fairy tale, both in literature and in reality. The Wall Street Journal reports:
The consumer price index rose 0.2%, the Labor Department said Wednesday. The CPI increased 0.4% in December. Core inflation, which is consumer prices excluding food and energy costs, increased by 0.3%, after rising 0.1% during each of the three previous months.
Core prices rose 2.7% in the 12 months ending in January 2007.
Bernanke is not likely to see 2.7% as a low rate of inflation. I still believe that the next move in the Fed Funds rate is higher.