Commentary
After driving inflation to double-digits, the Federal Reserve has been adamant about monetary restraint to restore price stability. Can the Fed succeed? If so, at what cost?
Further, what needs to be watched to conclude the Fed is achieving its objective? What must occur to conclude the Fed has succeeded?
The answers depends on how quickly inflation returns to the Fed’s target of 2 percent.
The Best Measure of Inflation?
Evidence the Fed is succeeding will come from various measures of consumer inflation. Monthly measures are preferable because they provide the earliest indication of a significant change.
The two alternative monthly measures of consumer inflation are the Consumer Price Index (CPI) and the so-called consumer price deflator. Each of these includes both the prices for all items as well as core inflation, which excludes volatile food and energy prices….