Ben is data dependent, and inflation keeps rising. The economy is slowing because consumers overspent…
Inflation rising and economy slowing at the same time? If the economy is slowing, then the Fed doesn’t have to worry about fighting inflation. The reality, of course, is that the economy is in fairly good shape. The stagflation scenario (high inflation and slowing economy) was a reality in the 1970s, when overactive policy makers thought they could stimulate the economy by printing more money. It didn’t work.
We have a far better Fed today than then, so the risk of stagflation is negligible. Note that stagflation is not something that occurs naturally: it is almost always the result of pumping too much liquidity.
In his testimony, he explained he does not rely on CPI, but on many other data points as well.
The CPI is the outcome variable of interest, which in turn is affected by many other variables, all closely watched. The Fed does rely on the CPI, and energy prices, and payroll numbers, and housing starts, and foreign trade, and exchange rates, and govt spending, etc.
So we can’t think he is fooled by the massaging of CPI numbers, since that is only one of the many inputs he considers.
I saw one other post where you wrote about the “real” inflation versus the manipulated numbers released to the public. The CPI is computed in a technical fashion, by skilled people. To suggest that the government, or some other entity, manipulates the CPI numbers, is ludicrous.
If we start thinking that official statistics are manipulated or massaged, then any intelligent discussion of macroeconomics would have to be disassociated from reality. In a world where official statistics are “lies”, then the “true” numbers would be what any charlatan wants them to be to fit his or her argument.
I still don’t get why some people say the Fed will pause.
We don’t know for sure, but it can be argued that high oil prices already serve the purpose of cooling down the economy. Note the distinction between higher price levels due to expensive oil (a one time jump in prices) as opposed to higher inflation (a sustained increase in prices). The point to make is that the former does not necessarily imply the latter.
Another reason is that the Fed may want to see if the recent hikes in short term rates will (or not) affect long term rates. Certainly you don’t want to keep pushing S-T rates up more than necessary, because then you risk really slowing down the economy.
