Sinai: Inflation Pausing, but Economy Still Growing Very Fast
DEBORAH MARCHINI, CNN ANCHOR: The Dow fell closer to the psychologically important 11000 mark thanks to some profit-taking. With the key inflation gauge out today, what might be in store for the markets?</s>DAVID HAFFENREFFER, CNN ANCHOR: Joining us now from Boston to discuss the economic challenge is chief global economist Allen Sinai, of Primark Decision Economics. Allen, thanks for waking up so early this morning.</s>ALLEN SINAI, PRIMARY DECISION ECONOMICS: Good morning. How are you?</s>HAFFENREFFER: CPI numbers out today. What are you looking for?</s>SINAI: We're looking for 1/10 overall and 1/10 in the core. The consensus is 2/10. Either way it would be a quiet reading.</s>MARCHINI: All right.</s>HAFFENREFFER: What would be driving those numbers?</s>SINAI: It looks like we'll have some softness in the technology- related components, and certainly, the energy numbers are going to be on the weak side.</s>MARCHINI: Since then, we've -- that has been superseded by rising oil prices. When do you expect that to start showing up in the CPI, and is it something the Federal Reserve might consider, despite a fairly temperate CPI report today?</s>SINAI: Well, I think, for now, inflation is pausing, even though our economy's still growing very fast. Later on this year, though, there is some worry on inflation; one reason is: the latest run-up in oil prices, the effects on gasoline and energy costs, and whether it will spill over into the core rate. Now, when we get into the winter, some of these costs -- heating costs, for example -- will push companies to want to raise prices higher, so we could have some inflation problem later on.</s>HAFFENREFFER: You say, for now things appear to be looking pretty good. Does that mean we should be discounting any economic signs of a slowdown here?</s>SINAI: Well, you know, slowdown is a funny word these days. What is a slowdown? We certainly are going to slowdown from the five- plus percent growth we had over the past year, but we are -- seem to be growing at about four percent; that is a slowdown by definition, but it's not really a weak economy. Is it too strong still for the Federal Reserve? I think that's doubtful because our productivity growth is so strong. We appear to be able to accommodate four percent growth now in our economy without necessarily having inflation pickup from current levels on bad growth.</s>MARCHINI: What happens to the job market, given your economic forecast? We started to see reports at least of a lot of layoffs in the papers this morning: Navistar cutting 1,100 jobs; yesterday it was DaimlerChrysler's freight liners; we've got Living.com out today with some job cuts. What do you think's going on?</s>SINAI: Well, we are slowing down in the jobs market. Jobs growth probably will now average 125,000 to 150,000 a month. We're getting some slowdown, but still good activity; that's what's so promising about the state of the economy. And I think the labor market, even though we'll have slower growth in jobs, we really won't see a rise in the unemployment rate because our labor force growth is really so slow. We're still short of workers in a lot parts of the country.</s>HAFFENREFFER: So the long and short here is that you're expecting the Fed to stand pat next week, but perhaps do some moving around, some interest-rate increases coming up a little later on in the year?</s>SINAI: Yes, I think that's probably the best scenario there. They're in a stage now where they can't wait and see what the effects are of those tightenings that they did, and nothings happening on the inflation front right now to be that worrisome. So I think they can pause, but they'll continue to stay alert and watch for any inflation pickup, and see how the economy does off those rate increases and the higher energy cost, which are costing consumers a lot of money. But toward the end of the year, I think they'll probably happen to a little more interest-rate hikes to tone things down on the inflation side.</s>MARCHINI: Some folks in the market are starting to talk about the prospect of interest rate cuts. When, if at all, might you see those coming?</s>SINAI: You know, that's a hope, but I think it's not something that's in the cards for a long, long time. We're not going to be out of the woods on inflation risk for quite a while. You have to remember, inflation is still relatively low, but it is higher than a year, year and a half ago. We're running in the two-to-three percent range in the core, and that's really at the edge of what the central bank can tolerate. So we've got to see a significant slowdown in the economy and/or a rise in the unemployment rate and/or some surprising down moves on the inflation rate before we really can seriously think about the Fed cutting rates.</s>HAFFENREFFER: All right, Allen Sinai, Primark Decision Economics, thanks for joining us this morning.</s>SINAI: Thank you.