The Fed's Miserable Inflation Targeting Performance in Pictures


Core personal consumption expenditures (PCE) is the Fed's preferred measure of inflation. Core PCE excludes food and energy. Let's investigate how close the Fed has been to its target since the history of the series, dating to January 1960.


  • Since the start of this series in 1960, the Fed hit the range 1.75% to 2.25% only 18.47% of the time, 128 months out of 693 months.
  • For 331 consecutive months, from July of 1966 through December of 1993, core PCE was above 2.25%.
  • The last time the core PCE topped 2.0% was January through April of 2012.
  • In only 4 months out of the last 108 months, from September of 2008 to present, did core PCE exceed 2.0%.

Low inflation has been the Fed's primary concern for a decade. Their fear is people will stop buying things.

Economic Challenge to Keynesians

Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them.

Reality Check Questions

  • If price of food drops will people stop eating?
  • If the price of gasoline drops will people stop driving?
  • If price of airline tickets drop will people stop flying?
  • If your coat is worn out, are you inclined to wait another year if you expect a bigger discount a year from now?
  • Will people delay medical procedures in expectation of falling prices?

Bonus Question

If falling prices stop people from buying things, how are any computers, flat screen TVs, monitors, etc., ever sold, in light of the fact that quality improves and prices decline every year?

My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.

There is no answer because history and logic both show that concerns over consumer price deflation are seriously misplaced.

Deflation Benefit

The BIS did a study and found routine deflation was not any problem at all.

Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the BIS study.

It’s asset bubble deflation that is damaging.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

Meanwhile economically illiterate writers bemoan deflation, as do most economists and central banks. The final irony in this ridiculous mix is central bank policies stimulate massive wealth inequality fueled by soaring stock prices.

Also consider Barry Ritholtz Asks “Why Has Inflation Remained Low for So Long?” Mish Asks “Is Inflation Low?”

Danger Charlatans at Work

Image placeholder title

The Fed wants to hit the "natural" rate of inflation but they do not even know what it is. For discussion please see Down the Rabbit Hole: SF Fed President John Williams Seeks “Direct Attack” on Low Inflation

Nonsensical Battle

In their nonsensical battle against routine price inflation, the Fed, the ECb, and the Bank of Japan (central banks in general) have all collaborated to build the biggest global asset bubble in history.

When that bubble bursts, debt deflation will smack them in the face like a tomato flying at 500 miles per hour.

I expect another round of price deflation will accompany the asset bubble bust.

What the central bankers do then remains to be seen, but history suggests they will keep doubling down as they did when Long term Capital Management blew up, when the dotcom bubble blew up, and when the housing bubble blew up.

But this time the central banks will be starting with negative interest rates in Japan and Europe,low interest rates in the US, and imploding junk bond bubbles everywhere.

Meanwhile, It's Transitory

Janet Yellen tells us low inflation is "transitory".

In the real world, if the Fed had any clues, they would spot plenty of inflation in the asset bubbles they have blown.

Mike "Mish" Shedlock

Comments (7)
No. 1-7

Does inflation make it easier for the government to pay its debt? If not, please explain.


If a government can issue today’s dollars at an interest rate less than the true rate of inflation, then that does soften their debt. If inflation is high and interest rates are high to match, then high inflation does not help repay debt and, to the extent high inflation hinders economic growth and causes others to avoid the currency, it hurts a government’s ability to repay.

IMHO, the best way for a government to repay its debts is: (1) provide a stable laissez-faire economic environment that is competitive with other jurisdictions in the world, (2) prohibit the formation of companies that are “to big to jail,” and (3) limit the long term trend in government spending growth to be slightly less than the long term trend in economic growth (sans government spending).

Commenting separately on our Host’s editorial, I suspect the Fed’s blindness to asset bubbles is willful. As soon they admit to inflation being higher than target then they will be forced into a predicament of tightening or losing credibility. As long as they report below target and people believe them, then they can pretty much do what they want. A third possibility if they get cornered is they may raise their target. That way, they can continue to say inflation is “below target” and still pretend to have some credibility. If they do raise the target, it will be a very public admission that the US one step closer to being Venezuela. I am doing my best to pay attention to what they do and at the same time I wish I could get them out of my life. It’s very frustrating.


Obamacare alone makes true inflation at least 4.5% annually.Its not worth arguing or listening to the cloistered idiots in Washington who exempted themselves from what the other 99.9999% experiences


A bit off Topic but about inflation nonetheless: Those now buying bitcoin at 6000 say it's just like buying the stock market at 6000 and ready to run to 23000 and even higher because even banks now are buying for clients and it can't be shorted-I just made that up Mish, but I bet a lot of people are using that same kind of logic-what do you think?


Bitcoin is madness - the madness that comes from a financial debt spiral out of control. So much money and debt floating around looking for a return. Hold on to something when it bursts.


"Low inflation has been the Fed's primary concern for a decade. Their fear is people will stop buying things." In the immediate wake of 9/11, Bush told people they should go out and shop. The FED is worried about a collapse in buying, AKA a Great Depression.


"The Fed wants to hit the "natural" rate of inflation..." There is no natural rate of inflation. As with anything cyclical, inflation fluctuates, depending on economic conditions. In 1965, the Vietnam War picked up steam and so did inflation. In 1971, Nixon closed the gold window. It took a double dip recession to burst an inflation rate bubble. Now we are at the opposite end of the cycle.

Global Economics