On July 29, the U.S. Bureau of Economic Analysis reported the U.S. Personal Consumption Expenditure (PCE) price index for the month of June, and the figure recorded the largest increase on 12 months since 1982. On the same day, Stanford University senior fellow at the Hoover Institution and economics professor John Cochrane said the Federal Reserve would need to raise rates above 9% to rein in inflation.
The PCE price index rose 4.8% from a year ago
The US economy continues to look bleak whenever a new report or economic data is released to the general public. In mid-July, the Bureau of Labor Statistics’ Consumer Price Index (CPI) report was released and revealed that CPI data for June reflected a record 9.1% increase in one year to the next. On July 27, the US Federal Reserve raised the federal funds rate by 75 basis points (bps) to help curb runaway inflation.
Two days later, the Bureau of Economic Analysis (BEA) released the closely watched Personal Consumption Expenditure Index data, also known as PCE. The PCE index had the biggest 12-month jump with a 6.8% rise in June, an increase not seen since January 1982.
“Compared to the same month a year ago, the PCE price index for June rose 6.8%,” the BEA report details. “The prices of goods increased by 10.4% and the prices of services increased by 4.9%. Food prices increased by 11.2% and energy prices by 43.5%. Excluding food and energy, the PCE price index rose 4.8% from a year ago,” the government entity’s records note. The BEA plans to publish the results of the annual update of the national economic accounts on September 29.
Stanford University economics professor thinks a gold or bitcoin standard won’t work
On the same day, economist John Cochrane gave an interview to Kitco’s press office and said that the US central bank should raise interest rates above 9%. Cochrane further remarked that a gold or bitcoin standard would not be able to control inflation. The Stanford University economics professor said the “consensus view” was that the Fed should raise rates “significantly above” the 9% region.
“That means that right now, with 9% inflation, economists are talking about 10, 11 or 12% interest rates to bring [prices] down,” Cochrane remarked. “I think the Fed and the markets expect a lot of inflation to go away on its own without interest rates having to go that high,” the economist said. from Stanford to Kitco News anchor David Lin.
Lin also asked Cochrane about a gold standard or bitcoin standard used to control inflation. “Sorry, no,” replied the economist. “Under the gold standard, there was a lot of inflation and deflation. 10 or 20% highs and lows of inflation and deflation, but each inflation then corresponded to a deflation. I’m sorry, we’re not going back to gold. Cochrane thinks the Fed needs to implement tighter fiscal policy in order to combat inflationary pressures.
As for a bitcoin standard, Cochrane said it was an awful idea and insisted that bitcoin (BTC) is “worthless”. “It’s a terrible idea,” Cochrane said in his interview with Lin. “In financial technology terms, Bitcoin is an attempt to revive gold, something inherently worthless that people only cling to because it’s scarce…Bitcoin is also very poor at making money. transactions itself, because it is so computationally intensive.” Cochrane concluded:
The best answer is that our governments should start conducting restrained fiscal and monetary policies and pay more attention to controlling inflation.
What do you think of the latest data from the PCE and the opinion of economist John Cochrane? Do you think that improving fiscal and monetary policies can help bring US inflation under control? Let us know what you think about this topic in the comments section below.
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