Investing.com - Financial Markets Worldwide
🚀 ProPicks AI Hits +34.9% Return!Read Now

Questioning The Fed’s Inflation Target

ByEd Yardeni
Published 09/23/2013, 01:04 AM
Updated 07/09/2023, 06:31 AM
ICON
-

Figure 1

The Fed’s inflation target (using the core personal consumption deflator) has been 2% for quite some time. It’s been below that rate since May 2012. At last week’s press conference, Fed Chairman Ben Bernanke said that the FOMC is considering setting an inflation floor. If inflation falls to or below this lower bound, then the federal funds rate won’t be raised even if the unemployment rate continues to decline. He added, “I mean that we should be very reluctant to raise rates if inflation remains persistently below target and that's one of the reasons that I think we can be very patient in raising the federal funds rates since we have not seen any inflation pressure.”

It’s not obvious to me why Fed officials want to boost inflation. The recent decline in inflation has been led by such goods as airfares, used cars, and furniture and bedding. The biggest plunge has been in medical care commodities inflation. Medical services inflation has also been falling. On the other hand, tenant rent inflation rose during August to 3.0% y/y, the highest since May 2009.

Why would it be good for the economy to have rents rise faster? Do Fed officials really want medical care inflation to rebound? These are questions that the Fed chairman did not address in his press conference.

Figure 2

Latest comments

Loading next article…
Install Our App
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.