CPI Down in May, Jobless Rate at 7.6%, the Fed is Happy

Grocery StorePrices for goods increased in the USA in the past month according to the Labor Department.  The Consumer Price Index moved up just one tenth of one percent meaning the change in prices was statistically flat or practically irrelevant.

Of course that number includes things like gas prices (energy) and also food prices so if you eliminate those things the inflation was about two tenth’s of a percent. That is a healthier looking number from an economic point of view. The total through April is 1.1% which is the lowest such number in more than 50 years.

The Federal Reserve’s money printing program, otherwise known as Quantitative Easing 3, has not seemed to hold down mortgage interest rates as it was designed to do. It is also unclear that it helped stimulate job production either. But it also hasn’t resulted in rampant inflation that might be expected with additional currency floating around in the economy.

That is probably because the extra dollars end up in bank reserves and because banks have become very stingy about making loans these days, the reserves have just piled up in the vaults somewhere. That can’t last forever of course, so positive or negative results of the increase in dollars will one day show themselves.

Inflation through May is still less than the 2% level that the Fed wants to stay under. The Fed was waiting for the 2% to be eclipsed as a sign to turn off its counterfeiting.  They are making rumblings that it may happen anyway.

Another reason the Fed may hold off is that it isn’t measuring against the CPI but the PCE. And the PCE is even lower than the CPI meaning that inflation is going nowhere.

Meanwhile in Brazil people are protesting en mas against rampant inflation that is taking money out of people’s pockets. In Norway, the Norges Bank is looking at cutting rates with the intention of increasing inflation because of overall weakness in the economy.

The Fed is forecasting a rosy economy by the end of next year, projecting unemployment will fall from the current 7.6% by a full percentage point to around 6.6%. This is one reason they are looking at reducing or eliminating QE3.

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