{"id":31317,"date":"2015-01-15T10:45:22","date_gmt":"2015-01-15T15:45:22","guid":{"rendered":"http:\/\/www.ino.com\/blog\/?p=31317"},"modified":"2015-01-15T10:45:22","modified_gmt":"2015-01-15T15:45:22","slug":"theres-still-hope-for-the-fed","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2015\/01\/theres-still-hope-for-the-fed\/","title":{"rendered":"There\u2019s Still Hope for the Fed"},"content":{"rendered":"<p style=\"margin: 0 0;\"><img loading=\"lazy\" decoding=\"async\" src=\"\/\/www.ino.com\/blog\/wp-content\/uploads\/2014\/12\/GeorgeYacik_Contributor_ImageBadge350.png\" alt=\"George Yacik - INO.com Contributor - Fed &amp; Interest Rates\" width=\"350\" height=\"131\" class=\"alignleft size-full wp-image-30496\" style=\"padding-top: 10px;\" srcset=\"https:\/\/www.ino.com\/blog\/wp-content\/uploads\/2014\/12\/GeorgeYacik_Contributor_ImageBadge350.png 350w, https:\/\/www.ino.com\/blog\/wp-content\/uploads\/2014\/12\/GeorgeYacik_Contributor_ImageBadge350-300x112.png 300w, https:\/\/www.ino.com\/blog\/wp-content\/uploads\/2014\/12\/GeorgeYacik_Contributor_ImageBadge350-270x100.png 270w\" sizes=\"(max-width: 350px) 100vw, 350px\" \/><\/p>\n<p style=\"margin: 0 0;\"><br style=\"clear:both;\"><\/p>\n<p>The minutes of the December 16-17 Federal Open Market Committee meeting offer some hope that the Fed is finally getting over its seven-plus years\u2019 worry that the U.S. runs the risk of falling into a deflationary spiral, similar to what we encountered during the Great Depression of the 1930s.<\/p>\n<p>While deflation, or even disinflation, might be a legitimate concern now in Japan and the Euro Zone, the idea that we face a similar threat seems a little hard to swallow. Perhaps this was a real concern during the panicky days of the global financial meltdown in 2008, but even then it seemed to be a stretch. Now, seven years later, it just looks ridiculous. <\/p>\n<p>According to the minutes of the December meeting, released last week, the Fed\u2019s monetary policy committee brushed off the idea that inflation would remain below the Fed\u2019s 2% target due to the declining price of oil, which it calls \u201ctransitory,\u201d and remaining slack in the labor market.<!--more--><\/p>\n<p>\u201cParticipants generally anticipated that inflation would rise gradually toward the Committee's 2% objective as the labor market improved further and the transitory effects of lower energy prices and other factors dissipated,\u201d the minutes state. \u201cInflation was projected to reach the Committee's objective over time, with longer-run inflation expectations assumed to remain stable, prices of energy and non-oil imports forecast to begin rising next year, and slack in labor and product markets anticipated to diminish slowly.\u201d<\/p>\n<p>Yet, the minutes show, a number of FOMC members still see a risk that inflation \u201ccould run persistently below their 2% objective, with some expressing concern that such an outcome could undermine the credibility of the Committee's commitment to that objective. Some participants were worried that the recent substantial fall in energy prices could lead to a reduction in longer-term inflation expectations, while others were concerned that the decline in market-based measures of inflation compensation might reflect, in part, that such a decline had already begun.\u201d<\/p>\n<p>Of all the things about Fed policy I just don\u2019t get, its take on inflation \u2013 rather, its fixation on raising it \u2013 is by far the most perplexing. So it\u2019s hard to understand what these \u201csome participants\u201d worried about too-low inflation are looking at \u2013 or even what country they\u2019re living in.<\/p>\n<p>Until the Fed started to tell us differently a few years ago, inflation has always been a dirty word. Inflation, no matter how low, was always bad. Most consumers view it that way; they always have, and rightfully so.<\/p>\n<p>Indeed, when Congress amended the Federal Reserve Act in 1977, giving it a dual mandate to promote maximum sustainable employment and \u201cprice stability,\u201d the latter was generally interpreted to mean low inflation. The amendment was enacted in response to the high inflation \u2013 then in the low teens \u2013 during the Nixon and Ford Administrations of the mid-1970s. <\/p>\n<p>Now, since the debacle of 2008, the Fed has been telling us that inflation is simply too low, and we must do something about it.  I\u2019m not a trained economist, but I don\u2019t feel I need to be one to know that makes no sense. <\/p>\n<p>The argument that we somehow have to fear too-low inflation sounds eerily similar to recent worries that low oil prices are bad for the economy. That idea is just as hard to swallow.<\/p>\n<p>Sure low oil prices are a problem if you\u2019re in the energy business or live in an OPEC country, but for the vast majority of Americans low oil prices are a net positive, and a big one. As the recent issue of Bloomberg Businessweek notes, only about 2% of the economy comes from capital spending by the energy sector, \u201ca drop in the bucket\u201d of GDP, which, by contrast, is comprised of close to 70% consumer spending.<\/p>\n<p>Normally, governments create inflation by simply doing what governments usually do, meaning they spend money they don\u2019t have. With Washington spending as much money as it has the past seven or so years and the Fed helping by buying up a good portion of government debt, we should be grateful that inflation is so low. (But don\u2019t count on it lasting; we\u2019ll have plenty to worry about soon enough).<\/p>\n<p>Just as big a problem is how the Fed defines and measures inflation. Exactly what numbers is it looking at to determine that inflation is as low as it claims?<\/p>\n<p>The median U.S. household income is now pretty much where it was more than 25 years ago. Can we say the same about prices?<\/p>\n<p>While gasoline prices have certainly come down recently and many other consumer goods have held steady, other things Americans spend most of their incomes on have gone through the roof, like state and local taxes and fees, higher education, health care and medical insurance, just to name a few. (It\u2019s not a coincidence that they\u2019re all government-mandated or -related costs). Doesn\u2019t the Fed include any of those things in its inflation metrics? Or don\u2019t these count?<\/p>\n<p>The last thing we have to worry about is that inflation is too low, and it\u2019s good to see that the Fed, or at least a majority of its members, is finally getting around to seeing that. Inflation will take care of itself, possibly sooner rather than later. Then the Fed will have a different battle to fight.<\/p>\n<p>Visit back to read my article next week! <\/p>\n<p><a href=\"http:\/\/www.ino.com\/blog\/meet-george-yacik\/\" target=\"_blank\">George Yacik<\/a><br \/>\nINO.com Contributor - Fed & Interest Rates<\/p>\n<p><span style=\"font-size: 12px; font-style: italic;\">Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.<\/span><\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>The minutes of the December 16-17 Federal Open Market Committee meeting offer some hope that the Fed is finally getting over its seven-plus years\u2019 worry that the U.S. runs the risk of falling into a deflationary spiral, similar to what we encountered during the Great Depression of the 1930s. While deflation, or even disinflation, might [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":16,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6920],"tags":[4189,6938,1070],"class_list":["post-31317","post","type-post","status-publish","format-standard","hentry","category-ino-com-contributors","tag-federal-open-market-committee","tag-george-yacik","tag-oil-prices"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.4 (Yoast SEO v23.6) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>There\u2019s Still Hope for the Fed - INO.com Trader&#039;s Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ino.com\/blog\/2015\/01\/theres-still-hope-for-the-fed\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"There\u2019s Still Hope for the Fed - INO.com Trader&#039;s Blog\" \/>\n<meta property=\"og:description\" content=\"The minutes of the December 16-17 Federal Open Market Committee meeting offer some hope that the Fed is finally getting over its seven-plus years\u2019 worry that the U.S. runs the risk of falling into a deflationary spiral, similar to what we encountered during the Great Depression of the 1930s. 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