Federal Reserve Chairman Jerome Powell has made some interesting statements in recent weeks about the Fed’s view of inflation. In summary, Chairman Powell has stated that overall inflation remains below the Fed’s 2% long-term objective, and that while reopening of the economy could produce price increases later in the year, inflationary pressures from rising prices are likely to be neither large nor persistent. Given the transient nature of these effects, and a long history of deflationary pressures in the U.S. and around the world, Chairman Powell believes that inflation isn’t something to worry about. And in any event, Chairman Powell reassures us that the Fed “has the tools to deal with that [inflation]” should it rise above long-term target levels. These statements stand in increasingly sharp contrast to the real world in which ordinary Americans live. The phrase popularized by Mark Twain that there are “lies, damned lies, and statistics,” seems well-suited to the Fed’s use of the Consumer Price Index (CPI) as the primary yardstick for inflation. The index has seen many changes to its basket over the years, which some believe has the effect of reducing measured inflation.
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