One component of the Fed's dual mandate is price stability - now defined as a 2% annual increase in the cost of goods and services. The other component is maintaining maximum employment. So far during the course of this recovery, both mandates have aligned themselves with easy-money policies. That is, the general solution to both problems (as seen by the Fed) has been to loosen monetary conditions. This theoretically incentivizes companies to borrow and invest, creating jobs; and the additional commercial lending also increases the money supply, bringing about the desired level of inflation.
Until recently both mandates could be attacked with the same general policies, but that may be changing.
Yesterday we received the latest CPI data and it's showing a level of inflation in-line with Fed targets. On a year-over-year basis, prices increased 2.1% in May, up from 2.0% in April. Excluding food and energy, prices were up 2.0% over the ... Log in or subscribe to continue reading.
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