The Inflation-Fighting Fed?

Here at Running of the Bulls, we are trusting people. We know that our elected officials, and their appointed representatives always tell us the truth. Why wouldn't they? What would a government official have to gain by not being straightforward with the 300 million citizens of this fine country? Therefore, when a government official speaks to us, we believe them.

Being government officials, we extend this same credulity to FOMC members. So when the Fed tells us they are concerned about inflation, we know they are serious.

And, I'll tell you, the FOMC is really serious about inflation.

This is what the FOMC had to say about inflation on September 18 when the Fed cut the funds rate 25-basis points (basis points, 1/100th of a percent).

Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully. [Emphasis added]

See? See? Inflation risks remain. And the Fed would remain vigilant guarding against the hidden ravages of inflation!

At that time, inflation readings were as follows:

CPI (consumer price index) 2.3%

PPI (producer price index) 2.3%

PCE (personal consumption expenditure) deflator 2.5%

Gold $714

You don't believe me? Well, let's see what our heroes had to say about inflation at their next meeting on October 31 when the FOMC cut by another 25-basis points.

Readings on core inflation have improved modestly this year, but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully. [Emphasis added]

And how were the inflation readings doing?

CPI 3.5%

PPI 6.1%

PCE deflator 3.0%

Gold $790

Okay, they ticked up a little, but that's just bad luck. The Fed is on the case, as they said on December 11 when they cut another 25-basis points.

Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully. [Emphasis added]

And inflation?

CPI 4.1%

PPI 6.3%

PCE deflator 3.6%

Gold $811

Well, okay, I guess.

Anyways, they said they watching inflation on January 22 when they cut by 75-basis points in an emergency meeting, and I feel good about that!

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

CPI 4.3%

PPI 7.4%

PCE deflator 3.7%

Gold $893

Er, guys...

They said the same thing on January 30 at the regularly scheduled FOMC meeting when the funds rate was cut by 50-basis points:

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

CPI 4.3%

PPI 7.4%

PCE deflator 3.7%

Gold $921

In the gold market, when the price gets bigger, does that mean gold is getting less expensive?

In the release following the last meeting on March 18 when rates were cut another 75-basis points, FOMC members stated:

Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully. [Emphasis added]

CPI 4.0%

PPI 6.4%

PCE deflator 3.7%

Gold $1004

It comforts me knowing the Fed is watching inflation. By the way, has anyone seen my wallet? I had it here just a second ago.

Gold cracked this week. One of the reasons given is because the Fed did not cut 100-basis points. Now, the funds rate is 2.25%. The futures market is expecting the Fed to cut 25-basis points at the next meeting in April and again in June, taking the target to 1.75%.

Meanwhile, charge-offs for credit cards, auto loans, home equity loans, Alt-A mortgages, option ARMs, prime mortgages, commercial real estate and commercial and industrial loans have just begun, not to mention that the $600 bonus checks the government will be sending us should arrive soon. I guess there won't be any more liquidity, and gold has topped.

Or maybe not.

Comments

[Robert DiAl...:]

Let's be careful out there people. This roller coaster ride is far from over.

2008 Mar 21 09:14 AM

[pharma:]

It is the incredible how incompetent, "honest", and panicky this Fed is.

2008 Mar 21 11:01 AM

[EUARTE:]

The Federal Reserve is headed by a person who agreed with Alan Greenspan. How could you expect things to get better? Add to this incompetentence and you have a soup of pure poison.

2008 Mar 21 12:38 PM

[john1:]

Don't forget, if you don't believe the trrist win.

2008 Mar 21 02:13 PM