On July 29, the US Bureau of Economic Analysis reported on America’s personal consumption expenditures price index for June, and that number saw the largest 12-month increase since 1982. On the same day, a Stanford University colleague at the Hoover Institution and economics professor John Cochran said The Fed should raise interest rates above 9% to tame inflation.
The PCE price index rose 4.8 percent from a year ago
The US economy continues to look bleak every time a new economic report or data is released to the general public. In mid-July, the Bureau of Labor Statistics’ Consumer Price Index (CPI) report was published, revealing that June’s CPI data reflected a record high of 9.1% year over year. On July 27, the US Federal Reserve raised the federal funds rate by 75 basis points to help curb hyperinflation.
Two days later, the Bureau of Economic Analysis (BEA) released the closely watched Personal Consumption Expenditure Index data known as PCE. The PCE index saw the biggest jump in 12 months, rising 6.8% in June, an increase not seen since January 1982.
“From the same month a year ago, the June PCE price index rose 6.8 percent,” the BEA report details. Commodity prices rose by 10.4 percent and services prices by 4.9 percent. Food prices rose by 11.2 percent and energy prices by 43.5 percent. Excluding food and energy, the PCE price index rose by 4.8 percent compared to last year,” the government entity’s records indicate. The BEA plans to release the results of the annual update of national economic accounts on September 29.
Stanford University economics professor thinks gold or bitcoin won’t work
On the same day, economist John Cochran gave an interview to Kitco News and said the US central bank should raise interest rates above 9%. Cochrane further notes that neither the gold nor the bitcoin standard will be able to control inflation. The Stanford economics professor said the “consensus view” is that the Fed should raise interest rates “significantly above” the 9% region.
That is, right now, with inflation at 9 percent, economists are talking about interest rates of 10, 11 or 12 percent. [prices] down,” Cochrane noted. “I think the Fed and the markets are relying on a lot of inflation fading out on its own without the need for interest rates to go that high,” Cochrane noted.
Lane also asked Cochrane about the gold standard, or bitcoin standard, used to control inflation. The economist replied: “Sorry no.” Under the gold standard, there was a lot of inflation and deflation. 10 or 20 percent ups and downs from inflation and deflation, but each inflation then has been offset by deflation. I’m sorry, we’re not going back to gold.” Cochrane believes that the Fed needs to implement tighter fiscal policy in order to combat inflationary pressures.
Regarding the bitcoin standard, Cochrane said it was a terrible idea and insisted that bitcoin (BTC) was “worthless”. “That’s a terrible idea,” Cochrane said in his interview with Lynn. “In terms of financial technology, Bitcoin is an attempt to resurrect gold, something that is intrinsically worthless and that people only hold because it is scarce… Bitcoin is also too poor to make transactions itself, because it is very computationally intensive.” Cochrane concluded that:
The best answer is that our governments should start implementing discreet fiscal and monetary policies, and pay more attention to keeping inflation under control.
What do you think of the latest PCE data and the opinion of economist John Cochran? Do you think that improved fiscal and monetary policies can help tame inflation in the United States? Tell us what you think about it in the comments section below.
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