Points to Ponder as the Fed Gathers
J.D. Foster /
The Federal Reserve’s Open Market Committee meets today in the face of tremendous economic uncertainty. In light of last week’s dismal jobs report and related evidence of a faltering recovery, markets are looking for signs as to what the Fed might say and do. It’s widely expected that the Fed will downgrade its near-term outlook for the economy and will suggest some actions it might take if a severe downturn materialized.
While the attention given to the jobs picture is understandable, some disturbing issues surrounding monetary conditions deserve equal attention. For example, perhaps the best measure of underlying inflationary pressures is an updated version of the trusty old Consumer Price Index (CPI). This more advanced version is called the chain-weighted CPI, or C-CPI. A common technique for looking at underlying trends is to look at core inflation by stripping out movements in food and energy prices. The annualized rate of inflation for the core C-CPI has been exactly 0.0 for the past three months. According to this measure, inflation over the past year has been a minuscule 0.2 percent. In short, it suggests near perfect price stability. (more…)