Producer price inflation is running at a solid 2-3% pace. In the past six months, the PPI has actually increased at a 4.1% annualized pace.
Real Treasury yields are at levels that were associated with rising inflation in the late 1970s. When bond yields fail to compensate for inflation this weakens the demand for money (e.g., by making borrowing cheap, and by increasing the attractiveness of speculation).
It's difficult to understand the Fed's preoccupation with "stimulating" the economy when the U.S. is doing demonstrably better than Europe and doing quite well on a standalone basis. U.S. industrial production is up at a 4.7% annualized rate in the past six months, and U.S. manufacturing production is up at a 4.1% rate over the same period. This is unambiguously strong. What's amazing is the gap between U.S. and Eurozone industrial production, which has become gigantic.
A survey of home builders' sentiment in July was stronger than expected (53 vs. 50), so as the graph above suggests, housing starts are likely to continue to move higher, albeit relatively slowly. The housing market has been taking something of a breather in the past 6-9 months, but that isn't necessarily the precursor to another slump.
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