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Inflation AccuracyFederal Reserve Bank of Dallas President Robert Kaplan speaking on Inflation and labor gave color to Fed economists study Getting a Jump on Inflation was released. How technology and the U.S. debt level is impeding inflation is something the Fed and economists have failed to grasp.

Kaplan speaking in the heart of oil, Midland Texas Wednesday

  • High US debt levels are an impediment to future growth
  • I want to be patient and wait for more information
  • Technology restraining inflation
  • Not saying I want to raise rates again this year
  • Tight labor market argues for some accommodation removal

Getting a Jump on Inflation

by Alan Armen and Evan F. Koenig of the Dallas Federal Reserve

Abstract: Accurate official estimates of Fed policymakers’ preferred PCE inflation measure take months, and sometimes years, to become available. A small set of timelier indicators offers realtime power to “nowcast” PCE inflation. Those indicators provide as much accuracy as initial government estimates and remain informative even after official estimates have been published.

I have often  argued at the ineptitude of beaurcrats and acemeics from understanding main street or the markets. In that context  here are a few quotes from the economic letter:

The initial PCE inflation estimate is available roughly two weeks after the CPI inflation report, and the initial estimate is subject to revision months—even years— after the fact. So, there’s a risk that policy actions based in part on PCE inflation will appear inappropriate in retrospect.

Helpful Inflation Indicators

So what is the Fed basing their estimates on? It is clear that measures such as a 2% inflation target the nowcast estimates are in fact measures to react off, because they can not because they should. One thing Kaplan is saying and others should take note of, is we really don;t know and we need to see the greater affects of rates.

The release of CPI inflation renders the ISM manufacturing and non-manufacturing price indexes irrelevant but not the aggregate Fed prices-paid index (line 4). Uniquely, the aggregate Fed pricespaid index possesses marginal predictive power even in the presence of first- or third-release PCE inflation (lines 5 and 6).

Chronology of Inflation info

The economic letter is a good read on many levels, the obvious, the interplay of reports, the irrelevance of many and which actually has predictive value. For mine how the reaction by markets to these reports distorts policy and the knock on effect back on to the market iinterests me here. In the end  the confusion and miscalullation can lead to unitended consequences the question is will they be positive or negative for the markets, main street or the bankers?

Read the full economic letter here: Getting a Jump on Inflation - The Dallas Fed


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