If unemployment continues to decline and the economy grows at an above-average pace ... I think they (the Fed) will be a little more concerned about bottlenecks.

If sales can be sustained at this level, that would help support housing construction, but inventory of new homes is still increasing. The housing market is cooling off, but not dropping sharply.

Inflation is creeping up, but it's not out of hand. I think that's pretty important. The bond market may have discounted a worst-case scenario over the last couple of months on inflation, and now maybe traders won't have to worry about the Fed moving too fast.

The (February) manufacturing report was a little better than expected, showing continued growth in manufacturing.

The Fed may be looking at oil prices as a reason for the economy to falter and not a reason for it to overheat, so they won't want to raise rates yet,

The Fed will overlook the strength in the economy before Katrina and focus more on getting the economy back on its feet and probably will hold policy steady until we see how the economy is actually dealing with the shock of lost jobs and high gasoline prices resulting from Katrina.

The Fed will probably hold rates steady at a low level as long as they can. And I think as long as the unemployment rate is rising, they'll maintain a policy bias toward weakness.

The Fed will probably not put a lot of emphasis on this data and instead will be looking more at the economy after the hurricane.

So core inflation is still rising slightly but doesn't appear to be a problem, and I think this is good news for the Federal Reserve . With energy prices declining it reduces the risk that fuel costs will be passed on to consumers.

It's not a big drop. It's reflecting the fact that the economy has improved this year, but not enough that consumers are convinced things are sufficiently better.