Oil is a double-edged sword. From one aspect, it lifts overall inflation but from the other side of the same coin it places a constraint on growth. So if oil prices remain high, the implications for the Fed get a little dicey.
We'll see continued downward pressure on unit labor costs in the first quarter. I think it's favorable on the inflation front.
The historical pattern is for shocks of this nature to initially be absorbed roughly equally between lower savings and lower purchases for other goods and services.
Overall there are not a lot of surprises here.
It's not friendly for the Fed at all. This boosts the chance of a March rate increase; it should cement 4.75 percent.
Further moves will be dictated by the tone of the data leading up to the next meetings. This is not to say that the fed funds rate couldn't go to 5 percent but there would need to be more underlying strength in the economy to drive it there.
Growth should decelerate through the final three quarters of the year and once that happens inflation pressures we've seen will begin to ease. That should lead to a more benign tightening cycle, which won't be threatening to the financial markets.
What struck me as a little out of character was the Fed's characterization of inflation staying elevated, ... What was here was a clear absence of any sort of signal that the Fed is getting close to the end of tightening and the market seems to be reacting a bit negatively to that.
It'll boost first-quarter GDP at a robust pace given the sluggishness of the fourth quarter.
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