The inflation news has gotten worse. As shown by the blue line below, headline inflation rose further in March - to 8.5 percent. This increase was paced by a 32 percent surge in energy prices. Even after removing energy and food prices (so-called core inflation), prices rose 6.5 percent, the red line. Both measures of … Continue reading Inflation Storm Clouds
Just as trees don’t grow to the sky, the rate of inflation will stop rising. The question is when? The chart below shows twelve-month percent changes in the Fed’s preferred measure of consumer price inflation—the Personal Consumption Expenditures (PCE) index. The headline index in blue rose 6.4 percent in February, the largest twelve-month increase in … Continue reading Inflation: When Will it Slow?
The latest news on the inflation front has not gotten any better. The Consumer Price Index (CPI) rose 7.9 percent over the twelve months ending in February, the blue line in the chart below, and, even after removing escalating food and energy prices, the CPI rose 6.4 percent, the red line. These measures are up … Continue reading What Will it Take to Subdue Inflation?
You have almost certainly discovered that prices at the pump have jumped over recent days. Unfortunately, pump prices are still headed higher. The Russian invasion of Ukraine has disrupted the global oil market and pushed energy prices higher. This impact is coming at a time when inflation is running at the fastest pace in four … Continue reading How Does the Ukraine War Affect the Outlook?
The recent news on the economy has been disappointing. The CPI rose 7.5 percent over the twelve months ending in January, shown in the chart below. This increase is the briskest since March 1982. Moreover, outsized price increases have become more widespread across various categories of goods and services, an indication that inflation has become … Continue reading Confronting the Inflation Beast
At the late-January FOMC meeting, the Fed acknowledged that it had fallen behind the curve on inflation and would likely take more aggressive tightening actions than forecast in December to bring inflation back under control. In mid-December, the target for the federal funds rate was 0 to 25 basis points (also the current target), and … Continue reading ￼What Will it Take to Tame Inflation?
The Fed has a dual mandate of maximum employment and stable prices. While the level of employment is three and a half million below the peak at the onset of COVID, chart below, other labor market indicators suggest that maximum employment has been achieved (see December 19, 2021 commentary, Get Ready for Fed Liftoff). The … Continue reading Tough Choices for the Fed
The time for Fed liftoff—the first step in raising the policy interest rate—has gotten a lot closer. In August 2020, the Fed specified that liftoff would begin once three conditions were met: inflation reached 2 percent; inflation was projected to be moderately above 2 percent for some time, and its maximum employment mandate had been … Continue reading Get Ready for Fed Liftoff
Source: “Transitory.” Merriam-Webster.com Dictionary, Merriam-Webster https://www.merriam-webster.com/dictionary/transitory. Concern about inflation has been mounting over recent months and was punctuated by the 0.9 percent increase in the CPI for October (11 percent at an annual rate). Public opinion polls are indicating that concern about the inflation outlook has been steadily rising. Meanwhile, Fed policymakers have been saying that … Continue reading Inflation: Is it Really Transitory?
It bears repeating that this business cycle has been like no other. The COVID shock produced the steepest contraction in output but the shortest recession on record. Spending on nearly everything except food purchased from grocery stores dropped precipitously. In the face of the lockdown, production of nearly everything also dropped off sharply. In a … Continue reading Placing the Expansion in Perspective