On July 29, the United States Bureau of Economic Analysis reported on the US Personal Consumer Spending Price Index (PCE) for the month of June and the figure saw the largest increase in 12 months since 1982. The same day, Stanford University senior researcher at the Hoover Institution and economics professor John Cochrane said the Federal Reserve would need to raise rates over 9% to tame inflation.
The PCE price index rose by 4.8% compared to a year ago
The US economy continues to look bleak every time a new economic report or data is released to the public. In mid-July, the Bureau of Labor Statistics’ Consumer Price Index (CPI) report was released, which revealed that the June CPI data reflected a record 9.1% year-over-year increase. On July 27, the US Federal Reserve raised the federal funds rate by 75 basis points (bps) to help curb searing inflation.
Two days later, the Bureau of Economic Analysis (BEA) released the carefully monitored personal consumption spending index data, otherwise known as the PCE. The PCE index saw the biggest jump in 12 months up 6.8% in June, an increase that hadn’t been recorded since January 1982.
“Since the same month a year ago, the June PCE price index has risen by 6.8%,” the BEA report details. “The prices of goods increased by 10.4% and the prices of services by 4.9%. Food prices increased by 11.2% and energy prices by 43.5%. Excluding food and energy, the PCE price index increased by 4.8 percent compared to a year ago, ”the government agency’s records read. The BEA plans to publish the results of the annual update of the national economic accounts on 29 September.
Economics professor at Stanford University thinks a Gold or Bitcoin standard won’t work
On the same day, economist John Cochrane gave an interview to Kitco’s editorial team and said the US central bank is expected to raise interest rates over 9%. Cochrane also noted that a gold or bitcoin standard would not be able to control inflation. The economics professor at Stanford University said the “consensus view” was that the Fed should raise rates “substantially above” the region by 9%.
“This means that, right now with 9% inflation, economists are talking about interest rates of 10, 11 or 12% to bring [prices] down, “Cochrane noted.” I think the Fed and the markets are counting on a lot of inflation going away on its own without interest rates having to go up that high, “Stanford economist David Lin told al. host of Kitco News.
Lin also asked Cochrane for a gold standard or a bitcoin standard used to control inflation. “Sorry, no,” the economist replied. “Under the gold standard, there was a lot of inflation and deflation. 10 or 20 percent of the ups and downs of inflation and deflation, but each inflation was then accompanied by deflation. Sorry, we’re not going back to gold. ”Cochrane believes the Fed needs to implement tighter fiscal policy to combat inflationary pressures.
As for a bitcoin standard, Cochrane said it was a terrible idea and insisted that bitcoin (BTC) was “worthless”. “This is a terrible idea,” Cochrane said in his interview with Lin. “In terms of financial technology, Bitcoin is an attempt to revive gold, something inherently worthless that people cling to just because it is rare … Bitcoin is also very poor to transact in itself, as it is so computationally intensive “. Cochrane concluded:
The best answer is that our governments should start implementing sober fiscal and monetary policies and pay more attention to keeping inflation in check.
What do you think of the latest PCE data and the opinion of economist John Cochrane? Do you think improving fiscal and monetary policies can help tame US inflation? Let us know what you think about this topic in the comments section below.
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