Does This Look Like Price Stability To You?

The Fed's Got A Long Way To Go On Both Mandates

October 11th 2024 - Volume 10 (2024), Missive 225 (Friday)

• You cannot switch between full employment and price stability

• 20 times the price volatility in six years

• The yield curve knows that the output gap is much too wide

The only way the Federal Reserve can achieve either mandate is to achieve both mandates. For the economy can only produce full employment when it is operating within an acceptable degree of its potential over a consistent time frame. It just so happens, this is the exact same condition that is necessary for the economy to produce price stability. Therefore, it is a huge error in judgement to pretend that the Fed can concentrate on one mandate while having accomplished the other. Yet, it appears that a majority of economic content producers believe that it is possible and that the Fed has quelled price volatility and can no concentrate on labor market slack. That is simply wrong. Case in point, the latest wholesale price index, or PPI, once again produced underlying volatile data that is more than just beyond the typical high frequency noise associated with producer prices.

Producer prices remain as volatile as ever with Stage 2 intermediate demand prices falling hard in September.

Although the headline data has a very hard time capturing the growing nature of price volatility, the information just below the surface is more than willing to give up the mystery. Headline data is always bad at translating any volatility as just as one sector produces a relatively large number in one direction, another produces an equally as larger move in the other direction. As such, it is of great significance to