Oh Boy...
Department of "Huh?!" (Structural Unemployment Edition)

The Wall Street Journal Op-Ed Page Lies All the Time, About Everything

Meltzer Misleads - NYTimes.com.png

Why oh why can't we have a better press corps?

Allan Meltzer dropped off my list of reliable commentators in the late 1990s, when he accused Larry Summers and Bob Rubin of breaking the law during the Mexican Peso Crisis of 1995. Now he has woken Paul Krugman's ire:

Meltzer Misleads: Reading Allan Meltzer’s latest, you might think that the CPI and the PCE deflator — two alternate measures of inflation — were telling dramatically different stories about what was happening to the US economy.... Yes, there was brief bulge in the PCE deflator early this year — which in itself raises questions about how reliable a measure it is. But basically, both show a steady trend toward lower inflation. Which is, by the way, the opposite of what Meltzer told us to expect.

Indeed. Meltzer:

Meltzer: Milton Friedman vs. the Fedm: In the late 1980s, former Fed Chairman Alan Greenspan encouraged everyone to watch... the PCE deflator. Since then, the Fed has used that measure as its inflation target. Recently, without much publicity, the Fed switched to the consumer price index (CPI). The reason? From 2003 to 2009, the two measures moved together. In 2010, they diverged—and the CPI shows substantially less inflation than the PCE. Even so, the most recent PCE deflator shows inflation running at around 1.2% annually, about where the Fed says it wants to hold the inflation rate. And it has been between 1.5% and 1.8% for a year. There is no sign of deflation.

The Fed says that it wants to hold the inflation rate at 2% per year, not 1.2% per year.