CPI Numbers Highlight Fed’s Many Mistakes

In June 2022, Fed Chair Powell said Monetary Policy will quickly bring the CPI down to 2%. Two and a half years later it remains at 3%.

The Bureau of Labor Statistics just released the monthly increase in the Consumer Price Index for December. The number indicated that consumer prices increased by .4%. For the prior 12 months, the CPI increased by 2.9%. Worse, the annual increase in the core CPI was 3.2%.

In June 2022, after eighteen months of watching the CPI steadily increase until it peaked at 9.1%, the Fed finally realized that price stability is the primary goal of the Federal Reserve’s Monetary Policy. Fed Chair Powell said that the policy would now be geared to bring inflation down to 2%. Recall it was 1.4% in December 2020.

To accomplish that, Powell sharply increased the Federal Funds Rate numerous times until July 2023 when that rate was raised from near zero to over 5%. Inflation was going down. By then the annual CPI had dropped to 3.2%. Much of that decrease was due to falling energy prices caused by weak worldwide demand for energy.

Excluding energy and food the annual CPI was 4.7% in July 2023.

Then, for whatever reason, the Fed mistakenly stopped raising interest rates. As a result, the CPI, which was supposed to fall to 2% or less, stayed around the 3%…