Norges Bank raises rates, Fed faces mixed data

If investors think central banks are losing their nerve as a result of the on-going market turmoil and the recent bout of liquidity injections, they might want to think again. From Bloomberg yesterday:

Norway's central bank raised its benchmark interest rate by a quarter point because of concern that economic growth in excess of 4 percent this year will stoke inflation.

Norges Bank lifted the deposit rate to 4.75 percent, the fifth increase this year, and reiterated that the rate would continue to rise "gradually," according to a statement on the bank's Web site today.

But it's the Federal Reserve that really moves markets, and yesterday's mixed economic data out of the US does not really add much clarity as to whether it is likely to move soon.

While the NAHB housing market index fell to 22 in August, the lowest in 16 years, other data suggest that the Fed may still need to keep an eye on inflation. MarketWatch reports:

With gasoline prices falling, U.S. consumer prices increased 0.1% in July, the slowest inflation rate in eight months, the Labor Department reported Wednesday.

The core consumer price index, which excludes volatile food and energy prices, increased 0.2% for the second straight month...

The CPI is up 2.4% in the past year, the lowest year-over-year increase since February, while the core CPI is up 2.2%, close to the upper end of Federal Reserve's target zone...

In a separate report, the Fed said industrial output expanded by 0.3% in July, with the capacity utilization rate rising to 81.9%, the highest since last September. See full story.

Also, the Labor Department said inflation-adjusted average weekly earnings fell 0.1% in July and are up 1.3% in the past year.

Rounding out Wednesday's economic data, the Federal Reserve Bank of New York said regional manufacturing activity indicated continued healthy expansion. The Empire State Manufacturing index inched lower to 25.1 in August from 26.5 in July, far less than expected. See full story.

On the whole, the data seem to be consistent with what I wrote in an earlier post. Inflation is moderating, but probably not fast enough for the Fed to cut rates soon.