Mixed data, low inflation means no Fed tightening soon

Markets rebounded on Tuesday with the S&P 500 rising 1.4 percent and gold rising 1.9 percent.

However, economic data on Tuesday were mixed.

In the US, a report showed that industrial production rose 0.4 percent in March but manufacturing production fell 0.1 percent.

Another report from the US on Tuesday showed that total housing starts rose 7.0 percent in March. However, starts for single-family houses fell 4.8 percent and building permits fell 3.9 percent.

There has been little inflation in the US though. The consumer price index fell 0.2 percent in March after having jumped 0.7 percent in February.

Low inflation means that the Federal Reserve will be in no hurry to remove monetary stimulus.

Indeed, Rich Bernstein thinks that the Fed will be slow to tighten. It will only tighten “when a strong and broad consensus forms that the economy can withstand a tightening cycle”, which is not the case today.

When it eventually does tighten, it will probably “tighten too much . . . and cause a recession”. However, that eventuality “is probably quite far in the future”.

Meanwhile, elsewhere, inflation held steady in the UK at 2.8 percent in March and slowed in the euro area to 1.7 percent from 1.8 percent in February.

The main concern in Europe, rather, has been weak growth. The ZEW index of investor confidence in Germany fell to 36.3 in April from 48.5 in March, its first decline in five months.

Indeed, the International Monetary Fund has urged European policy makers to stimulate the economy as it cut its latest global growth forecast for this year to 3.3 percent from 3.5 percent in January.