The yoy PCE core inflation rate in February was 1.3%, which includes 5 months of QE3, whilst the Fed’s target is 2%.
Here’s a chart from dshort at advisorperspectives.com that tracks PCE since 2000:
I suppose a good question about this bit of news might be, why bother setting a target that the Fed never intends to hit.
The FOMC announced the 2% PCE inflation target in January2012, which certainly seems to have been nothing more than hand-waving given that 1.3% is more or less the norm since 2009. I thought the entire idea of inflation targeting was, as explained by this 2005 article that quotes Bernanke saying that first the Fed says it and then it does it. Even if we were to just forget about how far the Fed is behind on the target over the entire time period since the 2008 crisis, certainly it should have hit the 2% target by now. The 1.2% average PCE core inflation per year since 2009 isn’t even within the accepted margin of error of 0.5%.
In my last post about monetary policy I went over some really bizarre things being said in the March FOMC meeting and compared it to the legal mandate. But just suppose that I could go along with tossing all of that out the window, agree that the Fed should only care about inflation and agree that 2% core PCE is an appropriate target (I don’t agree but for the sake of argument). The statements made in that meeting aren’t even consistent with a monetary policy-making body that has a single mandate – inflation control.
Oh, no. They’re concerned about bond markets. They’re concerned about excessive risk-taking. They’re concerned about what happens when the money the Fed remits to the Treasure dies up. There was not one mention of concern about hitting the target!
WTF happened to the target?!? Perhaps someone can inform me what the REAL target is because it certainly CANNOT be inflation. Are they now targeting the remit to the Treasury or bond yields, or what? I simply cannot tell. I don’t know how anyone on the FOMC would know that tapering OMPs and stopping by year end is the right thing to do because they no longer have any kind of yardstick – except conjecture and worry.
This is a joke, right? If not, there should be huge red flags going up all over the beltway that the Federal Reserve is badly in need of reform. In this condition, the system is not fit for a banana republic, let alone a representative republic that governed by the rule of law.