Sumary of Chief Economist: Real Inflation Is Now In The Double Digits And Pain Is Coming:
- In the 1970s, Federal Reserve Chair Arthur Burns denied that monetary policy played a role in the inflation cycle..
- Mr. Burns argued that higher inflation was due to idiosyncratic factors, such as food shortages and the OPEC oil embargo..
- The Fed Chair demanded that the Fed staff strip out the volatile food and energy components to prove his point, thereby creating what is now called the core inflation index..
- That proved to be a policy blunder as it allowed Mr. Burns to maintain an easy money policy that fueled the most significant and most extended inflation cycle in the post-war period..
- In recent decades, regional branches of the Federal Reserve have created new price conventions (e.g., median cpi, trimmed cpi)..
- It took the Fed Chairs of Volcker and Greenspan an entire decade, lifting official rates far above inflation to break the 1970s inflation, and in 1994 it took Greenspan a full twelve months to suppress a potential cyclical jump in inflation…