Fed Wants to Hoodwink Public, Only Fools Itself: Caroline Baum

October 15, 2010 04:02

Maybe the Fed can fool some of the people some of the time, but it can’t fool all of the people all of the time. In the process, policy makers may end up fooling themselves that they can create expectations of a little more inflation without delivering a lot of the real thing.

Caroline Baum at Bloomberg.com


Gold prices continue to set new highs. The U.S. dollar, the global reserve currency, keeps sinking amid expectations the Federal Reserve will dilute the existing stock starting at its Nov. 2 to 3 meeting.

Commodity prices, both industrial and agricultural, are on a tear. The CRB Spot Raw Industrial Price Index, which includes scrap metals, cotton and rubber — but not oil — hit an all- time high this week.

The markets aren’t validating the Federal Reserve’s preoccupation with a deflationary spiral. In fact, the message is just the opposite.

And that’s not all. We’re asked to believe the Fed can hit a precise inflation target. (How’d that money supply targeting work out in decades past?)

Take a look at the upward sloping CPI, even during the Great Moderation starting in the mid-1980s, and you will see the price level is anything but stable. The U.S. dollar buys less than half of what it did in 1982-1984, according to the Bureau of Labor Statistics.

Perhaps Fed chief Ben Bernanke will sort through this tortured logic when he speaks about monetary policy in a low- inflation environment at a Boston Fed conference today.


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