Economist Brad Delong believes that the US economy is in the midst of a soft landing, and that the Federal Reserve should have started cutting interest rates in January. Delong fears that the Federal Reserve “might upend America’s soft economic landing” if it doesn’t begin cutting interest rates soon.DeLong points out that core CPI (omitting food and energy prices) has fallen recently; it’s lower than it was a year ago. There are several problems with DeLong’s reasoning. First, the Federal Reserve doesn’t base its’ policy on the core CPI measure of inflation. The Fed pays close attention to the PCE measure of inflation. Why? The CPI tracks prices for a fixed set of goods. PCE inflation rates adjust for changes in what we buy- people tend to substitute cheaper goods for
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