The final (for now) report on GDP growth in fourth quarter 2005 hit the streets yesterday, and from a distance it wouldn't seem like there was much news in the news. The Skeptical Speculator has the summary, and Angry Bear focuses on the corporate profits side of the story (they were big). But the markets were decidedly focused on the price elements in the spreadsheet. From Reuters:
Inflation fears open floodgates in US rate futures
U.S. short-term interest rate futures fell on Thursday as dealers priced in fears of higher inflation and prospects for the Federal Reserve to keep its program of rate increases going.
Chances that the central bank will raise its fed funds rate another 50 basis points by the end of June, to 5.25 percent, rose as high as 32 percent from 22 percent late on Wednesday.
Triggering the decline was an upward revision to the Fed's preferred inflation measure for the fourth quarter of 2005, part of the final report on gross domestic product.
A fresh jump in crude oil prices and in the overall commodities sector added to the weak tone. Crude oil futures traded above $67 per barrel for the first time since early February.
The fourth-quarter core PCE deflator was revised up to 2.4 percent from 2.1 percent, near the top of the Federal Open Market Committee's presumed comfort zone on inflation.
I really would not have thought that the bygones of 2005 would be that big a deal. So I wonder: Does data dependent mean that markets have become especially sensitive to any signs that might be interpreted as support for higher policy rates?