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Economic forecasts are getting revised up, and people aren’t thrilled about it

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This post was originally published on TKer.co

Stocks inched lower, with the S&P 500 declining 0.3% last week. The index is now up 6.2% year to date, up 14% from its October 12 closing low of 3,577.03, and down 15% from its January 3, 2022 closing high of 4,796.56.

“The bear market is over, but it is not the great reflation,“ Chris Harvey, head of equity strategy at Wells Fargo Securities, wrote on Monday. “We see neither a bull nor a bear market, just a market.“

Calling it a “‘just-a-market’ market,” Harvey said he expected “some giveback, but not a sharp near-term reversal.”

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Indeed, we are hearing less from those who had previously forecast a big sell-off in the stock market in the early part of the year.

And while Harvey’s characterization of the stock market is a bit ambiguous, it isn’t paradoxical in the way many are viewing the economy.

An economy so good it’s bad 🙃

In last Sunday’s TKer, I discussed how bearish attitudes toward the economy were shifting bullish in the wake of strong economic data, noting that “it could take a few more weeks of resilient economic data before more economists officially revise their forecasts to the upside.“

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Well, those revisions are already coming in. Following Wednesday’s strong retail sales report, JPMorgan, Bank of America, and Deutsche Bank were among firms joining Goldman Sachs in revising up their near-term GDP forecasts or putting off their expectations for a recession.

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According to Census Bureau data, retail sales in January jumped 3.0% to a record $697 billion. This was the largest gain since March 2021, and it was much stronger than the 2.0% increase economists expected.

Excluding autos and gasoline, sales climbed an impressive 2.6% with gains in all retail categories.

(Source: <a data-i13n="cpos:1;pos:1" href="https://twitter.com/M_McDonough/status/1625850905999609856" rel="nofollow noopener" target="_blank" data-ylk="slk:@M_McDonough;cpos:1;pos:1" class="link ">@M_McDonough</a>)

The results were in line with Bank of America credit and debit card data released earlier this month showing an acceleration in spending.

After the retail sales report came out, the Atlanta Fed’s GDPNow model saw real GDP growth climbing at a 2.4% rate in Q1. This is up from 2.2% last week, and up considerably from its initial estimate of 0.7% growth as of January 27.

(Source: <a data-i13n="cpos:1;pos:1" href="https://www.atlantafed.org/-/media/documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf" rel="nofollow noopener" target="_blank" data-ylk="slk:Atlanta Fed;cpos:1;pos:1" class="link ">Atlanta Fed</a>)

And it’s not just the hard data that’s looking rosier. The soft data seems to be reflecting a less pessimistic tone as well.

According to Goldman Sachs research published Tuesday, mentions of “recession” on quarterly earnings calls have fallen sharply.

(Source: Goldman Sachs)

(Source: Goldman Sachs)

According to Bank of America’s Global Fund Manager Survey published Wednesday, “Recession odds peaked in Nov’22 at 77% and have since declined to 24% this month (down 27ppt MoM), lowest since Jun’22.“

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(Source: Bank of America)

(Source: Bank of America)

Indeed, attitudes about economic growth have shifted to the upside.

To be fair, it’s difficult to quantify precisely what the economy will do in the very near future. But the confluence of data — including strong consumer finances and robust demand for workers — has been suggesting there was bias to the upside. For more, read: 9 reasons to be optimistic about the economy and markets 💪

Unfortunately, many economists aren’t exactly thrilled as it puts at risk ongoing efforts to bring inflation.

Here’s the problem with all of this 🤦🏻‍♂️

The notion that good news about the economy is bad news for inflation has been renewed in the wake of very strong data on the labor market and consumer spending.

“My new take is good news is good news, great news is bad news,” Conor Sen, a columnist for Bloomberg Opinion, tweeted last week.

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Accompanying many economists’ upward revisions to their economic growth forecasts were hawkish revisions to their expectations for the path of monetary policy: Deutsche Bank, UBS, Bank of America, and Goldman Sachs were among firms warning that the Fed would hike interest rates by more than previously anticipated as it extends its fight to bring down inflation.

And hawkish monetary policy represents headwinds for both the economy and the financial markets.

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What to watch 👀

The big question is to what degree the strength in the economy interrupts the current downward trend in inflation. In other words, will we learn that the Fed’s claim that the disinflationary process started was premature?

It doesn’t help that last week’s consumer price and producer price reports were a bit hotter than some expected.

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But one month’s data never confirms nor denies a trend. We may still be on track to achieve the goldilocks scenario where inflation comes down without the economy having to go into recession.

We’ll have to wait and see.

That’s interesting! 💡

From a new NBER paper titled “Algorithmic Writing Assistance on Jobseekers’ Resumes Increases Hires“:

There is a strong association between the quality of the writing in a resume for new labor market entrants and whether those entrants are ultimately hired. We show that this relationship is, at least partially, causal: a field experiment in an online labor market was conducted with nearly half a million jobseekers in which a treated group received algorithmic writing assistance. Treated jobseekers experienced an 8% increase in the probability of getting hired. Contrary to concerns that the assistance is taking away a valuable signal, we find no evidence that employers were less satisfied…

Reviewing the macro crosscurrents 🔀

There were a few notable data points from last week to consider:

🛍️ Consumers are spending. According to Census Bureau data Wednesday, retail sales in January jumped 3.0% to a record $697 billion. For more on retail sales, see above.

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(Source: <a data-i13n="cpos:1;pos:1" href="https://www.bloomberg.com/news/articles/2023-02-15/us-retail-sales-jump-by-most-in-nearly-two-years-in-broad-gain" rel="nofollow noopener" target="_blank" data-ylk="slk:Bloomberg;cpos:1;pos:1" class="link ">Bloomberg</a>)

🏭 Industrial activity cools for a not-so-terrible reason. Industrial production activity growth was flat in December. Manufacturing output actually rose 1.0%. The main source of weakness came from something not everyone will complain about. From the Federal Reserve: “The output of utilities fell 9.9% in January, as a swing from unseasonably cool weather in December to unseasonably warm weather in January depressed the demand for heating.“

(Source: JPMorgan)

(Source: JPMorgan)

🎈 Inflation continues to cool. The consumer price index (CPI) in January was up 6.4% from a year ago, down from 6.5% in December.

(Source: BLS via <a data-i13n="cpos:1;pos:1" href="https://twitter.com/M_McDonough/status/1625489276720021504/" rel="nofollow noopener" target="_blank" data-ylk="slk:@M_McDonough;cpos:1;pos:1" class="link ">@M_McDonough</a>)

Adjusted for food and energy prices, core CPI was up 5.6% (down from 5.7%).

(Source: BLS via <a data-i13n="cpos:1;pos:1" href="https://twitter.com/M_McDonough/status/1625490952260558865" rel="nofollow noopener" target="_blank" data-ylk="slk:@M_McDonough;cpos:1;pos:1" class="link ">@M_McDonough</a>)

On a month-over-month basis, CPI was up 0.5% and core CPI was up 0.4%.

If you annualized the three-month trend in the monthly figures, CPI is rising at a 3.5% rate and core CPI is climbing at a 4.6% rate.

(Source: <a data-i13n="cpos:1;pos:1" href="https://twitter.com/jasonfurman/status/1625513289030696962" rel="nofollow noopener" target="_blank" data-ylk="slk:@JasonFurman;cpos:1;pos:1" class="link ">@JasonFurman</a>)

The bottom line is that while inflation rates have been trending lower, they continue to be above the Federal Reserve’s target rate of 2%. For more on the implications of cooling inflation, read: The bullish ‘goldilocks’ soft landing scenario that everyone wants 😀.

👍 Expectations for inflation ease. From the New York Fed’s January Survey of Consumer Expectations: “Median inflation expectations remained unchanged at the year-ahead horizon, decreased by 0.3 percentage point at the three-year-ahead horizon, and increased by 0.1 percentage point at the five-year-ahead horizon, to 5.0%, 2.7% and 2.5%, respectively.“

(Source: <a data-i13n="cpos:1;pos:1" href="https://www.newyorkfed.org/microeconomics/sce#/inflexp-1" rel="nofollow noopener" target="_blank" data-ylk="slk:NY Fed;cpos:1;pos:1" class="link ">NY Fed</a>)

📈 Inventory levels are up. According to Census Bureau data released Wednesday, business inventories climbed 0.3% to $2.45 trillion in December. The inventories/sales ratio was 1.37, up significantly from 1.29 the previous year.

(Source: <a data-i13n="cpos:1;pos:1" href="https://www.census.gov/mtis/www/data/pdf/mtis_current.pdf" rel="nofollow noopener" target="_blank" data-ylk="slk:U.S. Census Bureau;cpos:1;pos:1" class="link ">U.S. Census Bureau</a>)

For more on supply chains and inventory levels, read: We can stop calling it a supply chain crisis ⛓, 9 reasons to be optimistic about the economy and markets 💪, and The bullish ‘goldilocks’ soft landing scenario that everyone wants 😀.

🏠 Home builder sentiment improves. According to NAHB data released Wednesday, home builder sentiment improved in February. From the NAHB chief economist Robert Dietz: “While the HMI remains below the breakeven level of 50, the increase from 31 to 42 from December to February is a positive sign for the market. Even as the Federal Reserve continues to tighten monetary policy conditions, forecasts indicate that the housing market has passed peak mortgage rates for this cycle. And while we expect ongoing volatility for mortgage rates and housing costs, the building market should be able to achieve stability in the coming months, followed by a rebound back to trend home construction levels later in 2023 and the beginning of 2024.“

(Source: NAHB via <a data-i13n="cpos:1;pos:1" href="https://www.calculatedriskblog.com/2023/02/nahb-builder-confidence-increased-in.html?m=1" rel="nofollow noopener" target="_blank" data-ylk="slk:Calculated Risk;cpos:1;pos:1" class="link ">Calculated Risk</a>)

💳 Credit card balances are up. According to the NY Fed data, credit card balances increased by $61 billion to reach $986 billion during Q4, which is above the pre-pandemic high of $927 billion. With the aggregate credit limit at $4.4 trillion, however, consumers are far from maxing out their cards.

(Source: NY Fed)

(Source: NY Fed)

👎 Debt delinquencies continue to normalize. From the New York Fed: “The share of debt newly transitioning into delinquency increased for nearly all debt types, following two years of historically low delinquency transitions. Transition rates into early delinquency for credit cards and auto loans increased by 0.6 and 0.4 percentage points, following similarly sized increases in the second and third quarters. Delinquency transition rates for mortgages upticked by 0.15 percentage points. Those for student loans have remained flat, as the federal repayment pause remains in place.“ For more on this, read: Debt delinquency rates are normalizing 💳.

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(Source: NY Fed)

(Source: NY Fed)

💼 Unemployment claims remain low. Initial claims for unemployment benefits fell to 194,000 during the week ending Feb. 11, down from 195,000 the week prior. While the number is up from its six-decade low of 166,000 in March 2022, it remains near levels seen during periods of economic expansion.

(Source: DoL via <a data-i13n="cpos:1;pos:1" href="https://fred.stlouisfed.org/series/ICSA#" rel="nofollow noopener" target="_blank" data-ylk="slk:FRED;cpos:1;pos:1" class="link ">FRED</a>)

For more on low unemployment, read: That’s a lot of hiring 🍾, You should not be surprised by the strength of the labor market 💪, and 9 reasons to be optimistic about the economy and markets 💪.

Putting it all together 🤔

We’re getting a lot of evidence that we may get the bullish “Goldilocks” soft landing scenario where inflation cools to manageable levels without the economy having to sink into recession.

And the Federal Reserve has recently adopted a less hawkish tone, acknowledging on February 1 that “for the first time that the disinflationary process has started.“

Nevertheless, inflation still has to come down more before the Fed is comfortable with price levels. So we should expect the central bank to continue to tighten monetary policy, which means we should be prepared for tighter financial conditions (e.g. higher interest rates, tighter lending standards, and lower stock valuations). All of this means the market beatings may continue and the risk the economy sinks into a recession will relatively be elevated.

It’s important to remember that while recession risks are elevated, consumers are coming from a very strong financial position. Unemployed people are getting jobs. Those with jobs are getting raises. And many still have excess savings to tap into. Indeed, strong spending data confirms this financial resilience. So it’s too early to sound the alarm from a consumption perspective.

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At this point, any downturn is unlikely to turn into economic calamity given that the financial health of consumers and businesses remains very strong.

As always, long-term investors should remember that recessions and bear markets are just part of the deal when you enter the stock market with the aim of generating long-term returns. While markets have had a terrible year, the long-run outlook for stocks remains positive.

For more on how the macro story is evolving, check out the previous TKer macro crosscurrents »

For more on why this is an unusually unfavorable environment for the stock market, read: The market beatings will continue until inflation improves 🥊 »

For a closer look at where we are and how we got here, read: The complicated mess of the markets and economy, explained 🧩 »

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This post was originally published on TKer.co

Sam Ro is the founder of Tker.co. You can follow him on Twitter at @SamRo

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Rast’s accusations against Alec Baldwin were formally dismissed by Reuters

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© Reuters. FILE PHOTO: A view of the movie “Rust” playing at Bonanza Creek Ranch near Santa Fe, New Mexico, US January 20, 2023. REUTERS/Drone Base/File Photo

Written by Andrew Hay

TAOOS, New Mexico (Reuters) – Special prosecutors in New Mexico on Friday dropped charges against actor Alec Baldwin in the 2021 shooting of “Rust” cinematographer Halina Hutchins, referring to what many legal analysts described as a rationale for a prosecution. flawed jurisprudence.

A person close to prosecutors said the move followed new evidence of the gun Baldwin was carrying when he fired the shot that killed Hutchins while shooting the movie in Santa Fe, New Mexico.

This information undermined the prosecution’s case after a series of legal flops, leading them to dismiss the charges before a May hearing when a judge was to decide whether there was enough evidence to prosecute Baldwin and gunsmith “Rust” Hannah Gutierrez Reid.

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“The case was dismissed without bias and the investigation is active and ongoing,” prosecutors Carey Morrissey and Jason Lewis said in a memo.

Prosecutors went on to charge Gutierrez Reed, 25, with manslaughter. She has said she held the live round in the gun thinking it was a dummy round. The preliminary hearing in her case has been postponed to August 9.

The dismissal of the same charge against Baldwin came after his attorney presented evidence last week that the copy of the .45 Colt Baldwin has used has been modified with new parts since being manufactured by Italian gunsmith FLL Pietta.

The information compromised the prosecution’s argument that the gun was in fully working condition and could only fire if Baldwin recklessly pulled the trigger, according to the person familiar with the case.

Special prosecutors have said they may re-file charges against Baldwin once new evidence is examined, though legal experts are skeptical.

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“This very weak case against Baldwin should never have been brought in the first place,” said Ambrosio Rodriguez, a former district attorney with the District Attorney’s Office in Riverside County, California.

Filming for “Rust” resumed in Montana this week with many of the same lead actors, including Baldwin, and was expected to wrap up in May.

Rust Movie Productions (RMP) said in February that it would not resume filming in New Mexico, without giving a reason. A Santa Fe prosecutor charged Baldwin and others in January.

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Leading news reporter Jill Christian dies at 83

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Gail Christian, who broke barriers as a black on-air reporter and came to national prominence at NBC News and PBS, died April 12 in Los Angeles. She was 83 years old.

Her wife, Lucy Debardelapine, said it was a complication from a recent bowel surgery.

Christian overcame a troubled youth—including a prison term for armed robbery—to end a career as a prominent television journalist and news executive in the 1970s and 1980s, an era when the industry was dominated by white men.

It became a visible presence in American living rooms with it coverage to NBC News on the trial of Patricia Hearst, the newspaper heiress who was kidnapped in 1974 by a gang of left-wing revolutionaries called the Symbionese Liberation Army, and who was convicted two years later for participating in a bank robbery with the group.

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But for Ms. Christian, it wasn’t enough just to appear as a rare black face on the evening news.

She said in Interview with the Chicago Tribune In 1986. I felt that was the reason I was there. I didn’t resent it in the least. I felt then, as I feel now, that it is very dangerous for a group of people to live in a society in which they are not allowed to explain themselves.”

It has succeeded in this task with features like “A Country Called Watts”, An hour-long 1977 NBC News special that explored the efforts of residents of this Los Angeles neighborhood to come together and re-evaluate the bloody civil unrest that occurred in response to police brutality in 1965, rebuilding burned-out blocks in the face of perceived government indifference and continued police harassment.

Gary Gilson, former faculty director of a summer program for minority students at Columbia University’s Graduate School of Journalism, in a phone interview. “And her pioneering role as a black news reporter allowed black kids to see, many for the first time, an impressive person on television who looked like them. It gave them recognition and hope.”

After two years at NBC News, Ms. Christian became news director for public station KCET in her hometown of Los Angeles, where she created a “60 Minutes”-style investigative series called “28 Tonight” (the station was on channel 28).

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The program featured several award-winning segments, including a segment on a banking scandal that harmed low-income communities and another on a chemical spill in Orange County that caused illnesses in the area, each of which won a Peabody Award.

In 1981 she moved to Washington, where she began nearly a decade as the news director for the Public Broadcasting Service.

“Since I’ve been in the business, I’ve always wanted to be one of the officers who goes out in that little room and decides what’s going to be covered and who’s going to cover it,” she said in a 1976 interview with the Los Angeles Times. “But at NBC, I never saw any women walk into that little room. Nor any minorities. I thought this was my chance.”

She added, “As Bobby Seale said,” referring to one of the founders of the Black Panther Party, “take the time.”

Jill Christian Jill Patricia Wells was born on February 20, 1940, in Los Angeles, one of four children of Edwin Wells, who worked on an assembly line for the Hughes Aircraft Company, and Lucille (Scruggs) Wells, who owned a cosmetology college. In the Leimert Park neighborhood of South Central Los Angeles. (She later adopted Christian, a name from her mother’s family, as her professional surname.)

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Ms. Christian grew up in Venice, California, and spent three years studying world history at California State University, Los Angeles, before dropping out to join the Air Force in 1962. She was caught in a raging crowd after being discharged, and in 1965, was found guilty of Armed robbery after eroticism in a hotel.

The theft, which resulted in less than $100, led to her admission to the California Institute for Women in Chino for 18 months. Christian said in a 1976 interview with TV Guide. “I really didn’t need to do that. I had a loving family, unlike a lot of the others in prison. I was just kind of pushed out at the time.”

After she had served her time, a paroled colleague who was working as a switchboard operator at The San Francisco Examiner gave her a tip that the paper was planning to hire two black reporters to diversify its staff. Without any experience, Ms. Christian considered the opportunity far-reaching, but talked her way into the role of an apprentice by stretching the truth.

“I gave them this song and they danced around working on this little black paper that the Klan burned,” she told the Tribune.

In 1970, she participated in an 11-week summer program for minority students in broadcast journalism at Columbia. (Geraldo Rivera was a classmate.) Two years later, she was hired by local NBC affiliate KNBC. She worked there for six years before NBC News hired her.

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Her tenure at PBS ended in 1989, shortly after the network found itself embroiled in controversy over the airing of a pro-Palestinian documentary, Days of Rage, which Ms. Christian had acquired and was responsible for vetting. A news report confirmed that the film was partially supported by undisclosed Arab funding, which was denied by the film’s producer.

In an interview with The New York Times, Ms. Christian said she quit PBS for other reasons. She said, “You’re burning because this is a no-win situation.” “You are silent when things are going well and angry when there are questions.”

She eventually settled in Palm Springs, California, with Mrs. DeBardelaben, whom she married in 2016. In 2003, the couple started the Palm Springs Women’s Jazz Festival.

In addition to Mrs. DeBardelaben, Mrs. Christian is survived by her grandson. Her daughter, Sunday Barrett, died in 2019.

While Ms. Christian kept quiet about her prison term early in her career, she finally decided to divulge it to a sympathetic NBC executive. “The guy just looked at me,” she recalls. He says: I don’t have enough problems. Do I have to listen to you? Get outta here.’ I didn’t hear another word.”

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Economic mood and other investment stories you may have missed this week

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This week has been a tough bullish one. Here’s what investors saw:

  • Oil prices have given up most of the gains from the OPEC+ production cut.

  • The Philadelphia Fed Manufacturing Index hit a new low for this economic cycle and missed expectations. Other indicators from the Conference Board The leading economic indicator I also fell.

  • Initial jobless claims were a surprise to the upside for the fourth consecutive week.

  • Weak earnings and more caution emerged from freight operators JB Hunt and Union Pacific as well as auto retailer AutoNation. Netflix and Taiwan Semiconductor, a major supplier to Apple, also issued guidance warnings.

  • There have been more layoffs in Meta’s Cloroxwith reports of planned job cuts at Disney.

  • Tesla reported a quarterly gross margin loss recently price cuts.

The bottom line is that there is an ongoing negative shift in economic data, most likely as interest rates continue to rise in the economy. This is a red flag.

Oddly enough, however, investors can’t seem to jump into it judging by the resilience of the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average.

“The latest data is further evidence that there will be a recession in the US soon, which fits with our own view at DB Research that it is expected to happen later in the year,” Jim Reed, Deutsche Bank strategist wrote in the client note.

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Good words of wisdom now.

Tesla CEO Elon Musk speaks to a visitor as he arrives to look at the Tesla Gigafactory construction on September 3, 2020, near Gruenheide, Germany. (Photo by Maja Hitij/Getty Images)

3 things you might have missed

1. The mood among AmEx cardholders: I met with American Express CEO Stephen Squarey, and he struck an optimistic tone about order trends.

“The economy is definitely divided, and I think at the lower end of the economy, we’re seeing some pressure, but we don’t have that,” Squirey said, adding that he sees strong demand for travel in the spring and summer. The call to travel lines up with what we’ve heard about this earnings season from Delta and United Airlines.

2. Elon Musk is following the storm. An interesting highlight from Tesla’s earnings call was when Elon Musk said he didn’t see the economy improving until 2024. The CEO predicted another year of “stormy economic weather” before “things start to get sunny in the spring of next year.”

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Musk joins the likes of JPMorgan CEO Jamie Dimon in using weather to describe the economic outlook.

3. About this credit cost: In an exclusive on Yahoo Finance Live, Loretta Mester, President of the Federal Reserve Bank of Cleveland, tells Jane Schoneberger that there is only one direction for interest rates in the near term: higher.

“I think that, given the complexity of inflation, and given the still-strong job market, I think rates should go above the 5% level,” Mester said.

Loretta J.  Jim Urquhart

Loretta J. Jim Urquhart

C-Suite, quote of the week

“We are not seeing a significant drop in trade [among consumers]John Mueller, CEO of Procter & Gamble (PG) told Yahoo Finance Live. We are witnessing, if anything, more careful use of the product they purchased. So they might use half a sheet of a Bounty paper towel instead of a full sheet. But overall, again, just looking at the numbers, the consumer holds up very well.”

planner of the week

For those investors who are ignoring the dangers of the impending debt ceiling, here’s a helpful reminder from the macroeconomics team at Goldman Sachs on how markets will price in the 2011 debt ceiling debate:

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Remember the debt ceiling debacle of 2011?

Remember the debt ceiling debacle of 2011?

Brian Suzy He is the Executive Editor of Yahoo Finance. Follow Suzy on Twitter @tweet and on linkedin. Deal tips, mergers, activist positions, or anything else? Email brian.sozzi@yahoofinance.com

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