Topics:Federal Reserve | Currencies | Stock Market | Investment Strategy
Sectors:Oil and Gas
The Philly Fed's poor business conditions reading put a dent in stocks and gave the "stagflation" chorus more proof that the economy is slowing. But interesting were comments from J.P. Morgan's David Kelly on "Squawk on the Street" today. He says an important component, necessary to support the idea that inflation is rising as the economy slows is actually missing from the current economic picture.

"We're not going to have stagflation," he said. "Inflation is a lagging economic indicator. You've got this slowdown in economic growth. It's going to take the wind out of wages, and in fact wage growth has been slowing for over a year now, on a year-over-year basis."

"Inflation is always and everywhere a wage phenomenon in this economy. If you don't get a big increase in wages, you're not going to have big inflation," said Kelly, who is chief market strategist with J.P. Morgan Funds.

Kelly did say the big drop in the Philly Fed's index was a surprise. "It got weaker. It does show that manufacturing is in some serious trouble," he said, noting though that manufacturing only accounts for 10 percent of the U.S. work force.