The Inflation Targeting Scam And Why It Guarantees The Mother Of Financial Meltdowns
by David Stockman
DavidStockmansContraCorner.com
May 19, 2016
The estimable Martin Feldstein put the wood to the Fed in a recent op ed and in so doing hit the nail directly on the head. He essentially called foul ball on the whole inflation targeting regime and its magic 2.00% goalposts in part due to the measuring stick challenge.
A fundamental problem with an explicit inflation target is the difficulty of knowing if it has been hit.
That problem is plainly evident in the chart below. You could very easily make the argument that goods prices are beyond the Fed’s reach because they are set in the world markets and by the marginal cost of labor in China and the EM.
Therefore the more domestically driven CPI index for services such as housing, medical care, education, transportation, recreation etc. is the more relevant yard stick. Alas, if there is something magic about 2.00%, why then, mission accomplished!
On a five year basis, services inflation is up at 2.2% annually, and during the past year it has heated up to 3.2%.
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