History Backs Bernanke

"History Backs Bernanke Betting Volatility Variable Won’t Hurt
By Joshua Zumbrun - Mar 29, 2011 9:01 PM PT

March 1 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke speaks about the surge in oil and other commodity prices and the potential impact of the rising prices on the U.S. economy. Bernanke, in his semi-annual testimony before the Senate Banking Committee, says the rise probably won't cause a permanent increase in broader inflation and repeated borrowing costs are likely to stay low. (Excerpts. Source: Bloomberg)
U.S. Federal Reserve Chairman Ben S. Bernanke

Ben S. Bernanke, chairman of the U.S. Federal Reserve. Photographer: David Maung/Bloomberg

Federal Reserve Chairman Ben S. Bernanke is betting that surging prices for food and fuel won’t wind up breaking the cost of living for Americans. The historical record shows the odds are in his favor.

The Fed watches two key measures of inflation, known to economists as headline and core. The first is based on a basket of goods and services bought by the average American consumer. The second strips out volatile food and energy prices, providing a better picture of long-term trends.

While both have averaged about 2 percent a year since 1996, based on the personal-consumption expenditures index, headline inflation has jumped as high as 4.5 percent and fallen to minus 1 percent. In the same period, changes in core prices ranged from increases of 0.7 percent to 2.6 percent.

“From an economist’s perspective, it’s right to focus on the core,” said Vincent Reinhart, a former Fed official who is now a resident scholar at the American Enterprise Institute in Washington. “Appropriately, the Fed’s goal is headline inflation, but it’s headline inflation in the future, and therefore core is the good predictor.”

The rate of “pass-through from commodity-price increases to broad indexes of U.S. consumer prices has been quite low in recent decades,” Bernanke, a 57-year-old former Princeton University professor, said March 1 in his semiannual monetary- policy testimony to Congress. That points to a “temporary and relatively modest increase in U.S. consumer-price inflation,” he said.
Testing an Assumption

Surging prices of oil, corn and other commodities are testing that assumption. Crude oil has jumped 35 percent in the past six months, corn is up 38 percent and cotton is up 89 percent.

“If you talk to an average family in New Jersey and you say, ‘What is your food bill? What is your gas price? What is your tuition?’” they are “not going to tell you there’s deflation,” said Senator Robert Menendez, a New Jersey Democrat, when he questioned Bernanke after his testimony. “In a real context, I’m wondering how this macroeconomic policy is going to get to the average person in a way that changes their lives in a more positive way.”

A gallon of gasoline averaged $3.587 on March 28, the highest since October 2008, according to Heathrow, Florida-based AAA, the nation’s largest motoring organization. The increase helped push consumer confidence to the lowest level since August, as the Bloomberg Consumer Comfort Index dropped to minus 48.9 in the week to March 20. "

continued: http://www.bloomberg.com/news/2011-...g-volatility-variable-won-t-hurt-economy.html

 

A more accurate take on the Fed, inflation and Uncle Ben:

http://www.realclearmarkets.com/art...ion_comes_at_us_like_a_knuckleball_98937.html

"Amazingly, since 40% of the core CPI is owner's equivalent rent, Bernanke will continue to miss the mark about the true level of the inflation he has created."

stop being a fed apologist.

 

Any idiot can print money in his position

 

I call it as I see it.

From the article: "If the Fed had focused strictly on headline inflation, which rose to 4.5 percent in July 2008, it likely would have raised rates in the midst of the recession that began December 2007 and then had to drop them extremely rapidly as overall prices turned negative, according to Paul Ashworth, chief U.S. economist at Capital Economics Ltd. in Toronto. Instead it continued cuts it began in September 2007, when the federal funds target rate was 5.25 percent, eventually slashing its benchmark to near zero by December 2008.

“You can make errors,” Ashworth said. “In 2008 if you’d followed strictly headline, then you’d look like idiots when headline inflation was actually below zero in 2009.” "