Is The Federal Reserve the little engine that could? Or the monetary engine that can’t?
Inflation, as measured by the Consumer Price Index (CPI), declined in August from 0.6% MoM to 0.4% MoM while it rose from 1.0% YoY in July to 1.3% in August.. Hardly an earth-shattering spike in inflations
True, core inflation (CPI less Food and Energy) YoY rose to 1.7%, but that is still lower than pre-Covid readings of core inflation.
Owner’s equivalent rent of residence (or rent inflation) has actually declined to 2.7% YoY with the Covid outbreak in 2020.
We are seeing some inflation in the forward 5Y5Y inflation swap that is higher than in January 2020.
Remember the narrative that the US could always devalue public debt by creating massive inflation? First, The Fed can’t generate meaningful inflation. Second, lower inflation translates to lower interest rates allowing Congress to spend ever MORE money and Treasury to borrow even more!
The Fed is the HUGE monetary engine that CAN’T generate inflation.
Perhaps The Fed should sent out the Bat-signal for help in creating inflation.