US inflation may not ease, global growth remains encouraging

Yet another Fed official warns us not to count on an interest rate cut. Reuters reports:

The U.S. economy is poised for moderate growth and lower inflation, but there is no guarantee core inflation will continue to ease, Federal Reserve Vice Chairman Donald Kohn said on Monday.

"A very gradual decline in the trend rate of inflation continues to be the most likely outcome, but that path is still by no means assured," he said in remarks to the Atlanta Rotary Club...

Not assured, indeed. Not with consumer credit rising again. From Reuters:

U.S. consumer credit rose $12.33 billion in November as Americans loaded up on credit-card debt, while closed-end loans for items such as cars, educations and holidays recovered from an October decline, the Federal Reserve reported on Monday.

Consumer credit rose by a 6.23 percent annual rate to $2.390 trillion in November, compared to a revised October fall of $1.25 billion. October's 0.63 annual percentage rate fall was the biggest since a 0.96 percent drop in October 1992.

Sustained growth in US consumer spending will certainly help keep the global economy afloat though, even as German consumer spending appears to be faltering. From Bloomberg:

German retail sales unexpectedly fell for a third month in November as concern that tax increases will reduce households' disposable income restrained consumer spending.

Sales, adjusted for inflation and seasonal swings, declined 0.3 percent from October, the Federal Statistics Office in Wiesbaden said today. Economists forecast a gain of 1 percent, the median of 25 estimates in a Bloomberg News survey showed, with none predicting a decline.

But German manufacturing appears to be more resilient. Bloomberg reports:

German manufacturing orders rose for the first time in three months in November, led by an increase in demand for trucks and cars.

Orders, adjusted for seasonal swings and inflation, rose 1.5 percent from October, when they declined 0.7 percent, the Economy and Technology Ministry in Berlin said today. The report was in line with the median of 37 estimates in a Bloomberg News survey. From a year earlier, orders increased 6.1 percent.

So there appears justification for some optimism -- and a rate hike.

In Germany and across Europe the economy may still expand fast enough to allow the European Central Bank to keep raising interest rates in 2007.

ECB President Jean-Claude Trichet speaking as chairman of the Group of 10 nations in Basel, Switzerland, today said he's "reasonably confident" Europe and Asia will withstand a U.S. slowdown. Global growth is "encouraging," he said.