Another economist making me scratch my head...

I generally don't have a beef with Mark Zandi, but these statements show a clear lack of understanding...

``Productivity is solid and labor costs are slowing and this will take the pressure off inflation and the Federal Reserve,'' said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania. ``Unit labor costs have essentially come to a grinding halt and that should support corporate profits and allow businesses to hold the line on prices.''.....

First off....most of these economists are all over the board on the definition of inflation and how it behaves. The only time productivity increases help to ease pressure on inflation is when real wages have been escalating therefore increases in income creates upwards pressure on prices. This is clearly not the case with this downturn as real wages have been declining even as prices surge on commodities. Even though labor costs are shrinking (through layoffs - and temporary productivity gains) the input costs for producing goods is surging. The pressure on those prices will not go away as fuel and other inputs skyrocket. In addition, that will put downward pressure on demand as well as downward pressure on pricing. These are deflationary effects smacking square up against rising input costs. This is a double whammy for companies and retailers and you can be sure that profits will shrink accordingly. This "bullish run" in the market is in the face of all logic. The pressure should not at all come off the fed in regards to rates, as their rate cuts have almost entirely fueled the fall of the dollar and spike in commodities. We're paying for past loose monetary policy with the worst of both worlds now. Additional loose policies will only continue to dislocate this mess.