"Stubbornness does have its helpful features. You always know what you are going to be thinking tomorrow" Glen Beaman

It is simply amazing sometimes to observe how fast the public opinion swings from one direction to another. Several months ago no one really cared about recession or believed it was actually coming. Now you can hear people speak about it openly at the grocery check out line. And while this "casual recession chat" usually is a positive sign that signals that the majority of damage has been priced in into stock prices already, the stubborn denial of the Federal Reserve to accept the fact that inflation threat is real and that the "wishy-washy" projections of declining prices just won't materialize, is simply troubling...

I can't comprehend how could anyone deny that inflation has been trending UP not DOWN for a while now, and is actually showing signs of accelerating rather than slowing? US, UK, Japan and EU inflation is at multi year highs? Chinese inflation is at 11 year high? 65% y-o-y increase in prices of Iron Ore? 20% increases in rental rates for Rigs? Come on Ben - give me a break. How many times a year will they have to adjust the forecast? My guess on where the GDP growth and inflation are going to end up in 2008 is as good or may be even better than Fed's :)

But I am very glad that once in a while we can all read a reasonable commentary from a respected economist that actually makes sense:

Although it is too soon to tell whether the United States has entered a recession, there is mounting evidence that a recession has in fact begun. Key measures of economic activity stopped growing in December and January or actually began to decline. The collapse of house prices and the crisis in the credit markets continue to depress the real economy.

If a recession does occur, it could last longer and be more painful than the past several downturns because of differences in its origin and character. The recessions that began in 1991 and 2001 lasted only eight months from the start of the downturn until the beginning of the recovery. Even the deeper recession of 1981 lasted only 16 months.

But these past recessions were caused by deliberate Federal Reserve policy aimed at reversing a rise in inflation. In those cases, the Fed increased real interest rates until it saw the economic slowdown that it thought would move us back toward price stability. It then reversed course, reducing interest rates and bringing the recession to an end.

Please visit the WSJ to read the whole thing - I think it's a great read...

Percent change, past 12 months Aug Sep Oct Nov Dec Jan
CPI* 2.0 2.8 3.5 4.3 4.1 4.3
CPI less food and energy* 2.1 2.1 2.2 2.3 2.4 2.5
16% trimmed-mean CPI 2.4 2.5 2.7 2.8 2.8 3.0
Median CPI 2.9 3.0 3.0 3.1 3.1 3.2

Source: http://www.clevelandfed.org/research/inflation/us-inflation/mcpi.cfm