Wednesday, February 27, 2008

Kudlow on Inflation Worries

Economist Brian Wesbury says the Fed is in denial about rising prices. I think he's right.

Here's another problem. The Fed is going to be easing interest rates in the teeth of $950 gold and $101 oil! This can't make any sense to the average Main Street Joe out there.

At the end of the day, the job of the Fed is to stabilize the level of prices, or at least to keep the increase in the price level to less than 2 percent. But the yearly changes are way, way above 2 percent.

And using the so-called core inflation rate (which excludes food and energy) simply makes no sense over longer periods of time. In other words, core prices from month to month, and quarter to quarter, may be useful guides for the Fed, but they are no longer useful over periods of 12 months or longer. The rise of inflation, measured as a 12-month change, is truly significant over the past 4 months. It's a problem.

The Fed should stop easing right now, and it should maintain that posture until commodity prices start falling.

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