On July 29, the U.S. Bureau of Economic Analysis reported on America’s personal consumption expenditures (PCE) price index for the month of June, and the figure saw the largest 12-month increase since 1982. On the same day, Stanford University’s senior fellow at the Hoover Institution and professor of economics, John Cochrane, said the Federal Reserve should increase rates above 9% to tame inflation.
PCE Price Index Up 4.8 Percent from One Year Ago
Every time an economic report is published, the U.S. economy looks gloomy. In mid-July, the Bureau of Labor Statistics Consumer Price Index (CPI) report was published, and it revealed June’s CPI data reflected a record peak 9.1% year-over-year increase. To help reduce the ridiculously high inflation, the U.S. Federal Reserve raised the federal funds rate 75 basis points (bps), on July 27.
The Bureau of Economic Analysis released data on personal consumption expenditures two days later. This index is also known as PCE. The PCE index saw the largest 12-month jump rising 6.8% in June, an increase that hasn’t been recorded since January 1982.
“From the same month one year ago, the PCE price index for June increased 6.8 percent,” the BEA report details. “Prices for goods increased 10.4 percent and prices for services increased 4.9 percent. The prices of food and energy rose by 43.5 percent while they rose by 11.2 percent. Excluding food and energy, the PCE price index increased 4.8 percent from one year ago,” the government entity’s records note. On September 29, the BEA will release data from its annual National Economic Accounts update.
Professor of Economics at Stanford University Thinks a Gold or Bitcoin Standard Won’t Work
On the same day, the economist John Cochrane did an interview with Kitco’s newsdesk and said the U.S. central bank should bump interest rates higher than 9%. Cochrane added that the Fed would be incapable of controlling inflation if it used a bitcoin or gold standard. The professor of economics at Stanford University said that the “consensus view” was that the Fed should hike rates “substantially above” the 9% region.
“That means, right now with 9 percent inflation, economists are talking about 10, 11, or 12 percent interest rates to bring [prices] down,” Cochrane remarked. “I think the Fed and markets are counting on a lot of inflation going away on its own without interest rates having to go quite that high,” the Stanford economist told Kitco News anchor David Lin.
Lin also asked Cochrane whether a gold or bitcoin standard could be used to manage inflation. “Sorry, no,” the economist replied. “Under the gold standard, there was a lot of inflation and deflation. Although there were some ups or downs in inflation and deflation of 10-20%, every inflation was still matched by deflation. I’m sorry, we’re not going back to gold.” Cochrane believes the Fed needs to implement tighter fiscal policy in order to combat inflationary pressures.
As far as a bitcoin standard, Cochrane said it was an awful idea and insisted bitcoin (BTC) is “worthless.” “That’s a terrible idea,” Cochrane said in his interview with Lin. “In terms of financial technology, Bitcoin is an attempt to revive gold, something intrinsically worthless that people only hold onto because it’s rare… Bitcoin is also very poor for making transactions itself, since it’s so computationally intensive.” Cochrane concluded:
Our governments need to be more prudent in their fiscal and monetary policy, as well as pay greater attention to inflation control.
What do you think about the latest PCE data and the economist John Cochrane’s opinion? Is it possible to control U.S. inflation by implementing better fiscal and monetary policy? Comment below to let us know your thoughts on this topic.
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