Wednesday, July 10, 2024

On measuring inflation

From CNBC, 28 June 2024:

The Fed focuses on the PCE inflation reading as opposed to the more widely followed consumer price index from the Labor Department’s Bureau of Labor Statistics. PCE is a broader inflation measure and accounts for changes in consumer behavior, such as substituting their purchases when prices rise.

While the central bank officially follows headline PCE, officials generally stress the core reading as a better gauge of longer-term inflation trends.

So now I know: Headline PCE is "preferred" but Core PCE is "better".

The CPI runs higher than the PCE measures, and the Fed doesn't like it at all.


That part about the PCE measures accounting for changes in consumer behavior, well isn't that special. It means when prices get so high that we can no longer afford to buy meat, they take meat out of the inflation calculation. This is the preferred way to keep inflation down.

Well, at least the irony is good.

Tuesday, July 9, 2024

An alternative to will-he-or-won't-he

I am so tired of Democrats in the news, wasting their days bickering about whether Biden should stay in or get out of the November election. It would be far more productive to directly attack Donald Trump.

Trump created the Biden inflation, just as Nixon created the early-1970s inflation, by convincing enough of the voting members of the FOMC to delay raising interest rates. Call it election interference.

Asked if he created the Biden inflation, Trump would of course deny it. But Trump lies. He lies all the time. And he lies to make himself look good. So I have no choice but to believe that the truth would make Trump look bad.

Friday, July 5, 2024

It was never Biden's inflation

 

"... the federal funds rate had never been so low with inflation so high at a point when the Fed began increasing rates."


The Biden inflation was created by Donald Trump. All Trump had to do was delay the increase of interest rates after Jerome Powell's March 2021 warning that inflation was coming. 

I don't know how Trump did it, but I know he did it. Rates did not increase for a year after Powell's warning.

15 March 2020: Covid is in the air. The Federal Reserve ("the Fed") lowers the interest rate to zero.

4 March 2021: Fed Chairman Jerome Powell starts the clock. At the WSJ Jobs Summit, Powell said:

So right now inflation is running below 2%, and it's done so since the pandemic arrived. We do expect that as the economy reopens, and hopefully picks up, we will see inflation move up...

17 March 2021: At the press conference, Powell said pretty much the same:

Over the next few months, 12-month measures of inflation will move up... as the very low readings from March and April of last year fall out of the calculation. Beyond these base effects, we could also see upward pressure on prices if spending rebounds quickly as the economy continues to reopen, particularly if supply bottlenecks limit how quickly production can respond in the near term... The median inflation projection of FOMC participants is 2.4 percent this year and declines to 2 percent next year...

 15 April 2021: The Bureau of Labor Statistics reported:

Consumer prices increase 2.6 percent for the 12 months ending March 2021

Already in March of 2021, when Powell said he expected 2.4% inflation, he got more than expected. And all the rest of the inflation we've had since then has been above the 2.6% number.

March 2022: One year after Powell's inflation warning, the Fed begins raising the interest rate. They were a year too late. The interest rate was at zero. Low rates encourage inflation, and you can't go lower than zero. The one-year delay before raising rates was a highly effective way to create inflation and turn voters against Joe Biden.

June 2022: Just three months after the Fed finally began raising interest rates, inflation peaked. It took very little effort to break inflation's upward momentum. That's why I say printing money was not the direct cause of this inflation. The delay in raising interest rates was the cause.

It took a year for inflation to fall from 9 percent to 3 percent. Since June 2023 inflation has been stable at around 3.3 percent. In sum, it is now three years and four months since Jerome Powell warned us of inflation. It is two years and four months since the Fed decided to do something to fight the inflation. The one-year delay was a very effective strategy for turning voters against Joe Biden.

"Attack. Attack. Attack," wrote the New York Times. "Delay. Delay. Delay. Those two tactics have been at the center of Donald J. Trump’s favored strategy in court cases for much of his adult life..."

It worked with monetary policy, too: Attack and delay. Trump created the Biden inflation.

Download and share my 12-page PDF: "The Plan, Parts 1 and 2"