Inflation & the Federal Reserve

The chatter-media class has hit its note in unison, unemployment is down and inflation is rising.  Even though the recession ended in June ’09, the U.S. economy has been in negative territory since late 2008.

How best to explain this?

Yellen and her choir of technocrats are actually referring to spending habits that are trending upwards, this underscores their compulsion to publicly acknowledge a receipt of  the Fed’s target rate of 2%.  As for the unemployment rate. . . its dropping because unemployment insurance is running out, not because anybody got a job.

However, in truth, two major indices reveal a return to pre-crisis climate.  One is called the Current Population Survey regarding weekly earnings.  This survey has trended higher, meaning that median wages are rising.  Secondly, JOLTS (Job Openings & Labor Turnover Survey) reveals that people are quitting their jobs at a higher rate.  The implicit social/political guarantee is that citizens have found a source of security to quit a job.

There are two problems with these indices, the first one is based on an oral pronouncement over the phone (highly unreliable), the second premise isn’t any more factual or empirical either.

How does the Fed. measure inflation?

It uses the PCE deflator in lieu of the CPI index.  Cleveland’s Fed uses a median CPI Index, the Atlanta Fed uses the ‘Sticky’ CPI index, while the Dallas Fed uses the Trimmed Mean PCE deflator.  LOL, try not to laugh, for these bureaucratic entities all try to measure different fluctuations.

As the famous Russian once said, “What is to be done?”

We could start by ending large scale asset purchases, taper the reinvestment of maturing securities while shrinking the Fed’s balance sheet.  Oh, and raise interest rates.

Let’s start there.


About William Holland

Systematic Theologian/International Relations
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