New York Fed President, William Dudley, says 2% inflation target will remain elusive even if price pressures pick up.
Elusive means “6-10 months”.
Inflation is not likely to reach the Federal Reserve’s 2% annual target this year even if monthly data begins to pick up as expected, said William Dudley, president of the New York Fed, on Thursday.
“I do think inflation to start to move higher in the medium term, but probably not get all the way back to sort of 2% on a year-on-year basis,” Dudley said in remarks to reporters at his bank’s headquarters near Wall Street.
Low inflation readings since February will continue to weigh on the index until next year, he said.
“We’re not going to get to a year-over-year number of 2% until some of these very low readings drop out of the statistics six to ten months from now,” he said.
Dudley predicted the tight labor market combined with the weaker dollar should begin to foster upward inflation pressure soon.
Dudley Right on Cue
Dudley was right on cue today given that Producer Prices Unexpectedly Declined.
Transitory Factors to Continue
The Fed, at least Dudley, now believes transitory factors will continue for the rest of 2017 or so.
“Idiosyncratic and Transitory Factors”
On August 2, I noted “Idiosyncratic and Transitory Factors” Holding Down Inflation.
At that time, Loretta Mester, president of the Cleveland Fed commented: “My suspicion is it’s the idiosyncratic factors, it’s transitory and that the factors pushing down inflation are going to dissipate over time.”
Transitory for 9 Years!
Inquiring minds may be wondering how long these transitory factors have been going on.
Here is a chart of the Fed’s preferred inflation index, PCE excluding food and energy, since 1992.
The Fed hit its inflation target precisely one time in the last 9 years.
One Time Factors
The new definition of transitory is on the order of 9 years. And in regards to “one-time” factors, it seems Mester and Dudley need to study the above chart carefully.
Note that the Fed cannot hit its inflation target despite a falling US dollar.
In the real world, the Fed does not see inflation precisely because it is totally clueless about how to measure it.
Solving the Inflation Puzzle
Those hoping to solve the inflation puzzle can do so here: Central Banks Puzzled as Global Inflation Hits Lowest Level Since 2009: Solving the Puzzle.
As protection against Fed policies, it’s wise to own some gold. In case you missed it, please consider How Much Gold Should the Common Man Own?
Mike “Mish” Shedlock
Everything we need costs more
Everything we own (including our labor) is worth-less.
check the sizes of everything you buy. Had a customer call today and asked why my advertised 4 oz pepper spray only had 3 oz in the can I sent him. The manufacturer never notified the dealers to make a change. What a rip…………….
Next, the Department of Labor decides that the average person only uses an average of 3 oz. of pepper spray per attack, therefore 3 oz is the same as 4 oz and the price being the same, there was no change.
Medex Man said:
The title contains the word “inflation” (the cost of living in the real world)…
…yet the entire post is about PCE or CPI or some other irrelevant metric that is (at best) partially correlated with real world inflation.
Just remember boys and girls: the subprime contagion is still well contained! The mental giants at the Fed told us so.
Diogenes of Sinope said:
China has decoupled.
From Vancouver, that is. I think.
Employers are tapering.
Cable bill goes up every year. Cable bill isn’t included in measurement. Government mandates raise price of water heaters, HVAC, cars. But they aren’t measured either. Gas prices are up, I guess because of taxes(?), but because of higher fuel economy requirements people are using less fuel (but it’s not measured anyway). Health insurance crazy expensive, yet they don’t measure that either. Every few months banks threaten to start charging fees if you don’t keep massive quantities of money in their vaults. Is that measured?
But hey! Strawberries are only $2.00 a carton.
All this is measured. If the HVAC repair guy costs $125 while last year he only cost $100 that is measured whether or not the reason for his price increase is caused by gov’t mandates, higher gas prices, or simply demand and supply
I assume the argument here is that the CPI and other indexes that try to measure inflation in terms of the actual prices for goods and services people buy is insufficient because it should include ‘assets’ like stocks and bonds.
Left unexplained is the reason why such things should be included? Stocks and bonds are purchased in order for people to enjoy consumption goods in the future. At the end of the day we have an economy because we need to produce actual goods and services. Why should, say, the S&P 500 index be part of that when in the end we are not consuming shares of the S&P 500 but products produced by the companies in that index as well as others?
How, exactly, should this be enforced. For instance, in India gold is bought as a wedding gift in the form of jewelry but it’s also a long term store of wealth (especially since the entity that spews out rupees is even more contemptuous of its citizens than the fed). If the price of gold goes up, should that count or not toward inflation?
Maximus Minimus said:
They talk about FED credibility. I have a big, roaring laugh every time one of these clowns opens their mouth.
Conscience of a Conservative said:
Why any leader at the Federal Reserve believes that intentional destruction of the purchasing power of anyone’s savings is a good thing is beyond me.
It’s good for you if you’re in line ahead of everyone else at the money tap.
Lots of money funding debt funding unprofitable commodity production. That’s how you inflate. Not.