The punchbowl was swiftly removed because of a rising threat of inflation. The Labor Department reported that consumer prices jumped 0.4% in January and are up 4.3% in the past 12 months, nearing a 16-year high. Even stripping out sharply rising food and energy costs, prices rose 0.3%.
The same day inflation reared its ugly head, the Federal Reserve disclosed that it reduced its forecast for economic growth this year to between 1.3% to 2%, half a percentage point below the level of its previous forecast offered in October. Fed officials blamed the decelerating outlook on slumping housing prices, tighter lending standards and higher oil prices.
Somewhat remarkably, housing eschewed its familiar role as red-headed economic stepchild. For the second straight month, homebuilder confidence rose, according to the National Association of Home Builders and Wells Fargo index of builder sentiment. The index increased to 20 in February, up from 19 in January. Disaggregating the index, sentiment increased to 24 in the Northeast, 15 in the West, 24 in the South and remained at 16 in the Midwest.
Perhaps the increased confidence resulted from an unexpected increase in new home sales, which inched ahead 0.8% to an annual rate of 1.01 million homes in January, and the fact that traffic in model homes picked up in January, according to the NAHB.
Eric P. Egeland