The Fed ’s Got Problems But Deflation Isn’t One of Them

The following letter was sent to the editors of the Wall Street Journal in response to a March 13th opinion piece by Stephen Moore and Louis Woodhill entitled “The Fed is a Threat to Growth. ”To the editor,  While we at Cato hardly qualify as apologists for the Fed, I can ’t resist defending it from Stephen Moore’s sensational claim (“The Fed is a Threat to Growth,” March 14) that its “deflationary” policies have “chopped 1 to 1.5 percentage points off real growth over the past six months.” “Deflation,” first of all, means an absolute decline in prices, and not merely a decline in the rate at which prices increase. And notwithstanding Mr. Moore’s assertion that “the consumer-price index has been remarkably flat or slightly negative,” neither the CPI nor any other popular pric e index has actually declined in during the last six months. What ’s more, again contrary to Mr. Moore’s claims, “core” inflation rate measures, which exclude energy and food prices and are, for that reason, less volatile and more reliable inflation measures, have been both remarkably stable and very close to the Fed’s two percent target over the last si x months—and longer. The core CPI rate has actually remained slightlyabove two percent, while the core PCE (Personal Consumption Expenditures) rate, the Fed ’s preferred measure, has hovered just an insignificant smidgen below it. And while Mr. Moore may believe that the especially volatile commodity prices ...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs