Fed Chairman spoke at The Economic Club of New York last night and todays stock market sell off was at least in part a reaction to his comments on the current financial crisis. Chairman Bernanke stated in his conclusion, that although the credit markets have seen some improvement, he thinks that a “full recovery of market functioning may take some time” and “we may well see some setbacks.”

Some positive notes to point out from his speech:

• Core Inflation has moderated but overall inflation risks remain
• Consumer Spending has thus far has not been effected

So, just what is core inflation? Core inflation itself, has no specific definition. There are 3 core measures the Fed uses.

1. PPI or Producer Price Index - measures prices on a wholesale level
2. CPI or Consumer Price Index - CPI measures a basket of goods or services. There are eight groups from where price data is collected. Housing, Food and Beverages, Transportation, Apparel, Education, Medical Care and Communication, Other goods and services
3. PCE or Personal Consumption - measures the prices paid by consumers on a domestic level for goods or services

(CPI numbers will be reported tomorrow morning 10/16 at 8:30 am. Estimates are for 0.2%)

Consumer Spending was mentioned more than once throughout the speech and will be a heavyweight for a decision at the next FOMC meeting on October 30 - 31 and going forward. Chairman Bernanke and the rest of The Dream Team will have a watchful eye for any “spill over to other parts of the economy–for example, by acting as a restraint on consumer spending.” Consumer spending is huge for the overall economy as it accounts for a full 2/3rds of GDP. So its the uncontested heavyweight in the feds eye for now.

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