Gold feeling stable after ECB rate hike

Market analysts see no similar threat from Spain, but there is plenty of fretting about peripheral debt issues to keep things muddled. Yet, Mr. Trichet’s institution obviously did not subscribe to the idea that the commodity price-driven rise in price tags is – as Mr. Bernanke puts it – “transitory” and pushed the interest rate button while cognizant of the various risks of doing so. ECB watchers are now focusing on ascertaining whether this morning’s rate adjustment is but the first salvo in a to-be-continued series or whether the move will turn out to be a mistake and convince the Fed to remain “loose” for a while longer than currently expected.

Michael Darda of MKM Partners has quickly accused the ECB of making a “serious policy error” and saw nothing but pain and a hard landing for Europe as a consequence of such a “mistake.” Others see the ECB move as now forcing the Fed’s hand as it would loathe to be perceived as being “behind the curve.”

Central bankers are not however sitting around and taking their cues from critics or from fans, and believe they have mandates to honor. One of them – in fact the only one that the ECB really has – is the obligation to keep inflation at bay and at or below targeted levels. In that sense, at least as measured by consumer prices, the ECB acted from the angle that regional CPI is running between 2.4 and perhaps 2.6 percent and that the time had come to do that which it did today.

US CPI is currently just one tenth above Fed targets, giving the Fed a little more time to do a similar thing. For now, the US central bank is taking a bit of a ‘wait and see’ attitude as it expects commodities to have some of the ultra-hot air leak out of them and do some of the job on its behalf. To be continued.

Also to be continued, the situation in the EU’s debt-ridden satellites. While declaring that the country faces absolutely no prospects of going the way of Portugal, Spain’s Economic Minister, Elena Salgado, probably convinced only a handful of skeptics that her country will be able to handily overcome difficulties such as 20% (!) unemployment while also putting into motion austerity measures designed to avert the fate of neighboring Portugal at the same time. Mr. Socrates’ country is set to receive a 75 billion euro-sized life preserver in the near future.

Analysts and economists concur that so long as oil continues to trade at stratospheric levels, we will likely continue to see more of the same as we have seen in Portugal, or worse. There is now a growing concern among them that the speculative-driven spike in energy might just take the global economy off the recovery track and send it off into an undesirable direction as soon as this year. GDP statistics (and not just those of the US) will thus be under heavy scrutiny all summer long, to be sure.

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