CMP Associates Regulation Blog: Mediocre Cyclical United States Economic Growth with GDP Three Trillion Dollars Below Trend in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming Below Trend Worldwide Followed by the Probable Global Recession in the Lockdown of Economic Activity in the COVID-19 Event, Contraction of US GDP at SAAR of 5.0 Percent, Cyclically Stagnating Real Private Fixed Investment, Contraction of Corporate Profits in the Lockdown of Economic Activity of the COVID-19 Event, United States Terms of International Trade, World Inflation Waves, United States Housing, United States House Prices, Probable Global Recession, World Cyclical Slow Growth, and Government Intervention in Globalization: Part II

Mediocre Cyclical United States Economic Growth with GDP Three Trillion Dollars Below Trend in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming Below Trend Worldwide Followed by the Probable Global Recession in the Lockdown of Economic Activity in the COVID-19 Event, Contraction of US GDP at SAAR of 5.0 Percent, Cyclically Stagnating Real Private Fixed Investment, Contraction of Corporate Profits in the Lockdown of Economic Activity of the COVID-19 Event, United States Terms of International Trade, World Inflation Waves, United States Housing, United States House Prices, Probable Global Recession, World Cyclical Slow Growth, and Government Intervention in Globalization

Carlos M. Pelaez

I Mediocre Cyclical United States Economic Growth with GDP Three Trillion Dollars Below Trend in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming Below Trend Worldwide Followed by the Probable Global Recession in the Lockdown of Economic Activity in the COVID-19 Event

IA Mediocre Cyclical United States Economic Growth

IA1 Stagnating Real Private Fixed Investment

IA2 Swelling Undistributed Corporate Profits

IID United States Terms of International Trade

I World Inflation Waves

IA Appendix: Transmission of Unconventional Monetary Policy

IB1 Theory

IB2 Policy

IB3 Evidence

IB4 Unwinding Strategy

IC United States Inflation

IC Long-term US Inflation

ID Current US Inflation

IE Theory and Reality of Economic History, Cyclical Slow Growth Not Secular Stagnation and Monetary Policy Based on Fear of Deflation

IIA United States Housing Collapse

IIA1 Sales of New Houses

IIA2 United States House Prices

III World Financial Turbulence

IV Global Inflation

V World Economic Slowdown

VA United States

VB Japan

VC China

VD Euro Area

VE Germany

VF France

VG Italy

VH United Kingdom

VI Valuation of Risk Financial Assets

VII Economic Indicators

VIII Interest Rates

IX Conclusion

References

Appendixes

Appendix I The Great Inflation

IIIB Appendix on Safe Haven Currencies

IIIC Appendix on Fiscal Compact

IIID Appendix on European Central Bank Large Scale Lender of Last Resort

IIIG Appendix on Deficit Financing of Growth and the Debt Crisis

Foreword A.

Table V-3, Percentage Changes of GDP Quarter on Prior Quarter and on Same Quarter Year Earlier, ∆%

	IQ2020/IVQ2019	IQ2020/IQ2019
USA	QOQ: -1.3 SAAR: -5.0	0.2
Japan	QOQ: -0.9 SAAR: -3.4	-2.0
China	-9.8 (-71.0)	-6.8
Germany	-2.2	-1.9 CA -2.3
UK	-2.0	-1.6

QOQ: Quarter relative to prior quarter; SAAR: seasonally adjusted annual rate

Source: Country Statistical Agencies http://www.bls.gov/bls/other.htm https://www.census.gov/programs-surveys/international-programs/about/related-sites.html

Foreword B. There is typically significant difference between initial claims for unemployment insurance adjusted and not adjusted for seasonality provided in Table VII-2. Seasonally adjusted claims decreased 323,000 from 2,446,000 on May 16, 2020 to 2,123,000 on May 23, 2020 in the COVID-19 event. Claims not adjusted for seasonality decreased 266,682 from 2,181,640 on May 16, 2020 to 1,914,958 on May 23, 2020.

Table VII-2, US, Initial Claims for Unemployment Insurance

	SA	NSA	4-week MA SA
May 23, 2020	2,123,000	1,914,958	2,608,000
May 16, 2020	2,446,000	2,181,640	3,044,000
Change	-323,000	-266,682	-436,000
May 09, 2020	2,687,000	2,356,626	3,543,000
Prior Year	218,000	199,194	218,250

Note: SA: seasonally adjusted; NSA: not seasonally adjusted; MA: moving average

Source: https://www.dol.gov/ui/data.pdf

Table VII-2A provides the SA and NSA number of uninsured that decreased 3,742,432 NSA from 22,794,138 on May 9, 2020 to 19,051,706 on May 16, 2020.

Table VII-2A, US, Insured Unemployment

	SA	NSA	4-week MA SA
May 16, 2020	21,052,000	19,051,706	22,722,250
May 09, 2020	24,912,000	22,794,138	21,962,000
Change	-3,860,000	-3,742,432	+760,250
May 02, 2020	22,548,000	20,879,704	19,688,750
Prior Year	1,675,000	1,509,265	1,680,000

Note: SA: seasonally adjusted; NSA: not seasonally adjusted; MA: moving average

Source: https://www.dol.gov/ui/data.pdf

I World Inflation Waves. This section provides analysis and data on world inflation waves. IA

Appendix: Transmission of Unconventional Monetary Policy provides more technical analysis. Section IB United States Inflation analyzes inflation in the United States in two subsections: IC Long-term US Inflation and ID Current US Inflation. There is similar lack of reality in economic history as in monetary policy based on fear of deflation as analyzed in Subsection IE Theory and Reality of Economic History, Cyclical Slow Growth Not Secular Stagnation and Monetary Policy Based on Fear of Deflation.

The critical fact of current world financial markets is the combination of “unconventional” monetary policy with intermittent shocks of financial risk aversion. There are two interrelated unconventional monetary policies. First, unconventional monetary policy consists primarily of reducing short-term policy interest rates toward the “zero bound” such as fixing the fed funds rate at 0 to ¼ percent by decision of the Federal Open Market Committee (FOMC) from Dec 16, 2008 to Dec 16, 2015 (http://www.federalreserve.gov/newsevents/press/monetary/20081216b.htm). Fixing policy rates at zero is the strongest measure of monetary policy with collateral effects of inducing carry trades from zero interest rates to exposures in risk financial assets such as commodities, exchange rates, stocks and higher yielding fixed income.

Chart III-1C provides the yields of the ten-year, two-year, one-month Treasury Constant Maturity, and the overnight Fed funds rate from Jan 2, 1962 to May 28, 2020. The final data point is for May 28, 2020 with the Fed funds rate at 0.05 percent, the one-month Treasury constant

maturity at 0.14 percent, the two-year at 0.17 percent and the ten-year at 0.70 percent. The causes of the financial crisis and global recession were interest rate and housing subsidies and affordability policies that encouraged high leverage and risks, low liquidity and unsound credit (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 157-66, Regulation of Banks and Finance (2009b), 217-27, International Financial Architecture (2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization and the State Vol. II (2008b), 197-213, Government Intervention in Globalization (2008c), 182-4). Several past comments of this blog elaborate on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html Gradual unwinding of 1 percent fed funds rates from Jun 2003 to Jun 2004 by seventeen consecutive increases of 25 percentage points from Jun 2004 to Jun 2006 to reach 5.25 percent caused default of subprime mortgages and adjustable-rate mortgages linked to the overnight fed funds rate. The zero-interest rate has penalized liquidity and increased risks by inducing carry trades from zero interest rates to speculative positions in risk financial assets. There is no exit from zero interest rates without provoking another financial crash. The yields of Treasury securities inverted on Mar 22, 2019 with the ten-year yield at 2.44 percent below those of 2.49 percent for one-month, 2.48 percent for two months, 2.46 percent for three months, 2.48 percent for six months and 2.45 percent for one year (https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield). There was some flattening on Mar 29, 2019, with the 10-year at 2.41 percent, the 1-month at 2.43 percent, the 3-month at 2.40 percent, the 6-month at 2.44 percent and the 1-year at 2.40 percent. There was further mild steepening on Apr 12, 2019, with the 10-year at 2.568 percent, the 1-month at 2.419 percent, the 3-month at 2.440 percent, the 6-month at 2.463 percent and the 1-year at 2.453 percent. The final segment after 2001 shows the effects of unconventional monetary policy of extremely low, below inflation fed funds rate in lowering yields. This was an important cause of the global recession and financial crisis inducing as analyzed by Taylor (2018Oct 19, 2) “search for yield, excessive risk taking, a boom and bust in the housing market, and eventually the financial crisis and recession.” Monetary policy deviated from the Taylor Rule (Taylor 2018Oct19 see Taylor 1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27, 2012Mar28, 2012JMCB, 2019Oct19 and http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html)). An explanation is in the research of Adrian, Estrella and Shin (2018, 21-22): “Our findings suggest that the monetary tightening of 2004-2006 period ultimately did achieve a slowdown in real activity not because of its impact on the level of longer term interest rates, but rather because of its impact on the slope of the yield curve. In fact, while the level of the 10-year yield only increased 38 basis points between June 2004 and 2006, the term spread declined 325 basis points (from 3.44 to .19 percent). The fact that the slope flattened meant that intermediary profitability was compressed, thus shifting the supply of credit, and hence inducing changes in real activity. The 18 month lag between the end of the tightening cycle, and the beginning of the recession is perfectly compatible with effective monetary tightening.” See (https://www.newyorkfed.org/research/capital_markets/ycfaq.html). A major difference in the current cycle is the balance sheet of the Fed with purchases used to lower interest rates in specific segments and maturities such as mortgage-backed securities and longer terms.

Chart III-1C, Yield US Ten-Year, Two-Year and One-Month Treasury Constant Maturity Yields and Overnight Fed Funds Rate, Jan 3, 1962-May 28, 2020

Note: US Recessions in shaded areas

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/h15/

Chart VI-12A of the Board of Governors of the Federal Reserve System provides the overnight fed funds rate and the bank prime rate on business days from Jan 5, 2007 to May 28, 2020. There is a jump in the rates and yield with the increase in fed funds rates target range from 0 to ½ percent to ¼ to ½ percent on Dec 16, 2015 by the Federal Open Market Committee (http://www.federalreserve.gov/newsevents/press/monetary/20151216a.htm), ½ to ¾ percent on Dec 14, 2016 (https://www.federalreserve.gov/newsevents/press/monetary/20161214a.htm) and ¾ to 1 percent on Mar 15, 2017 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20170315a.htm). The FOMC raised the fed funds rate to 1 to 1¼ percent at its meeting on Jun 14, 2017 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20170201a.htm). The FOMC increased the fed funds rate to 1¼ to 1½ percent on Dec 13, 2017 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20171213a.htm). The FOMC increased the fed funds rate to 1½ to 1¾ percent on Mar 21, 2018 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20180321a.htm). The FOMC increased the fed funds rate to 1¾ to 2.0 percent on Jun 13, 2018 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20180613a.htm). The FOMC increased the fed funds rate to 2.0 to 2¼ percent on Sep 26, 2018 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20180926a.htm). The FOMC increased the fed funds rate to 2¼ to 2½ percent on Dec 19, 2018 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20181219a.htm). The FOMC decreased the fed funds rate to 2 to 2¼ on Jul 31, 2019 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20190731a.htm). The FOMC decreased the fed funds rate to 1¾ to 2.0 percent on Sep 18, 2019 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20190918a.htm). The FOMC decreased the fed funds rate to 1½ to 1¾ on Oct 30, 2019 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20191030a.htm). The FOMC decreased the fed funds rate to 1 to 1¼ percent on Mar 3, 2020 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200303a.htm). The FOMC decreased the fed funds rate to 0 to ¼ percent on Mar 15, 2020 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm). The final segment of Chart VI-11 shows similar movement of the fed funds rate and the prime bank loan rate following the fixing of the fed funds rate to approximately zero. In the final data point of Chart VI-12A on May 28, 2020, the fed funds rate is 0.05 percent and the prime rate 3.25 percent. The causes of the financial crisis and global recession were interest rate and housing subsidies and affordability policies that encouraged high leverage and risks, low liquidity and unsound credit (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 157-66, Regulation of Banks and Finance (2009b), 217-27, International Financial Architecture (2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization and the State Vol. II (2008b), 197-213, Government Intervention in Globalization (2008c), 182-4). Several past comments of this blog elaborate on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html Gradual unwinding of 1 percent fed funds rates from Jun 2003 to Jun 2004 by seventeen consecutive increases of 25 percentage points from Jun 2004 to Jun 2006 to reach 5.25 percent caused default of subprime mortgages and adjustable-rate mortgages linked to the overnight fed funds rate. The zero-interest rate has penalized liquidity and increased risks by inducing carry trades from zero interest rates to speculative positions in risk financial assets. There is no exit from zero interest rates without provoking another financial crash. The yields of Treasury securities inverted on Mar 22, 2019 with the ten-year yield at 2.44 percent below those of 2.49 percent for one-month, 2.48 percent for two months, 2.46 percent for three months, 2.48 percent for six months and 2.45 percent for one year (https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield). Unconventional monetary policy of extremely low interest rates was an important cause of the global recession and financial crisis inducing as analyzed by Taylor (2018Oct 19, 2) “search for yield, excessive risk taking, a boom and bust in the housing market, and eventually the financial crisis and recession.” Monetary policy deviated from the Taylor Rule (Taylor 2018Oct19 see Taylor 1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27, 2012Mar28, 2012JMCB, 2019Oct19 and http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html)). An explanation is in the research of Adrian, Estrella and Shin (2018, 21-22): “Our findings suggest that the monetary tightening of 2004-2006 period ultimately did achieve a slowdown in real activity not because of its impact on the level of longer term interest rates, but rather because of its impact on the slope of the yield curve. In fact, while the level of the 10-year yield only increased 38 basis points between June 2004 and 2006, the term spread declined 325 basis points (from 3.44 to .19 percent). The fact that the slope flattened meant that intermediary profitability was compressed, thus shifting the supply of credit, and hence inducing changes in real activity. The 18 month lag between the end of the tightening cycle, and the beginning of the recession is perfectly compatible with effective monetary tightening.” See (https://www.newyorkfed.org/research/capital_markets/ycfaq.html). A major difference in the current cycle is the balance sheet of the Fed with purchases used to lower interest rates in specific segments and maturities such as mortgage-backed securities and longer terms.

Chart VI-12A, US, Fed Funds Rate and Prime Bank Loan Rate, Business Days, Jan 5, 2007 to May 28, 2020, Percent per Year

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/datadownload/Choose.aspx?rel=H15

Chart VI-12B of the Board of Governors of the Federal Reserve System provides the fed funds rate and prime bank loan rate on business days from Jan 2, 2001 to May 28, 2020. The behavior over time is that of controlled interest rates. Unconventional monetary policy with zero interest rates and quantitative easing is quite difficult to unwind because of the adverse effects of raising interest rates on valuations of risk financial assets and home prices, including the very own valuation of the securities held outright in the Fed balance sheet. Gradual unwinding of 1 percent fed funds rates from Jun 2003 to Jun 2004 by seventeen consecutive increases of 25 percentage points from Jun 2004 to Jun 2006 to reach 5.25 percent caused default of subprime mortgages and adjustable-rate mortgages linked to the overnight fed funds rate. The zero-interest rate has penalized liquidity and increased risks by inducing carry trades from zero interest rates to speculative positions in risk financial assets. There is no exit from zero interest rates without provoking another financial crash. The final segment shows the repetition of this policy with minute increases in interest rates. The causes of the financial crisis and global recession were interest rate and housing subsidies and affordability policies that encouraged high leverage and risks, low liquidity and unsound credit (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 157-66, Regulation of Banks and Finance (2009b), 217-27, International Financial Architecture (2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization and the State Vol. II (2008b), 197-213, Government Intervention in Globalization (2008c), 182-4). Several past comments of this blog elaborate on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html Gradual unwinding of 1 percent fed funds rates from Jun 2003 to Jun 2004 by seventeen consecutive increases of 25 percentage points from Jun 2004 to Jun 2006 to reach 5.25 percent caused default of subprime mortgages and adjustable-rate mortgages linked to the overnight fed funds rate. The zero-interest rate has penalized liquidity and increased risks by inducing carry trades from zero interest rates to speculative positions in risk financial assets. There is no exit from zero interest rates without provoking another financial crash. The yields of Treasury securities inverted on Mar 22, 2019 with the ten-year yield at 2.44 percent below those of 2.49 percent for one-month, 2.48 percent for two months, 2.46 percent for three months, 2.48 percent for six months and 2.45 percent for one year (https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield). The final segment after 2001 shows the effects of unconventional monetary policy of extremely low, below inflation fed funds rate in lowering yields. This was an important cause of the global recession and financial crisis inducing as analyzed by Taylor (2018Oct 19, 2) “search for yield, excessive risk taking, a boom and bust in the housing market, and eventually the financial crisis and recession.” Monetary policy deviated from the Taylor Rule (Taylor 2018Oct19 see Taylor 1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27, 2012Mar28, 2012JMCB, 2019Oct19 and http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html)). An explanation is in the research of Adrian, Estrella and Shin (2018, 21-22): “Our findings suggest that the monetary tightening of 2004-2006 period ultimately did achieve a slowdown in real activity not because of its impact on the level of longer term interest rates, but rather because of its impact on the slope of the yield curve. In fact, while the level of the 10-year yield only increased 38 basis points between June 2004 and 2006, the term spread declined 325 basis points (from 3.44 to .19 percent). The fact that the slope flattened meant that intermediary profitability was compressed, thus shifting the supply of credit, and hence inducing changes in real activity. The 18 month lag between the end of the tightening cycle, and the beginning of the recession is perfectly compatible with effective monetary tightening.” See (https://www.newyorkfed.org/research/capital_markets/ycfaq.html). A major difference in the current cycle is the balance sheet of the Fed with purchases used to lower interest rates in specific segments and maturities such as mortgage-backed securities and longer terms.

Chart VI-12B, US, Fed Funds Rate and Prime Bank Loan Rate, Business Days, Jan 2, 2001 to May 28, 2020, Percent per Year

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/datadownload/Choose.aspx?rel=H15

Second, unconventional monetary policy also includes a battery of measures in also reducing long-term interest rates of government securities and asset-backed securities such as mortgage-backed securities.

When inflation is low, the central bank lowers interest rates to stimulate aggregate demand in the economy, which consists of consumption and investment. When inflation is subdued and unemployment high, monetary policy would lower interest rates to stimulate aggregate demand, reducing unemployment. When interest rates decline to zero, unconventional monetary policy would consist of policies such as large-scale purchases of long-term securities to lower their yields. Long-term asset-backed securities finance a major portion of credit in the economy. Loans for purchasing houses, automobiles and other consumer products are bundled in securities that lenders sell to investors in a process known as “credit-risk transfer” (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 48-52; Pelaez and Pelaez, International Financial Architecture (2005), 101-60). Corporations borrow funds for investment by issuing corporate bonds. Financial institutions and lenders finance loans to small businesses by bundling them in long-term bonds. Securities markets bridge the needs of higher returns by savers obtaining funds from investors that financial institutions and lenders channel to consumers and business for consumption and investment. Lowering the yields of these long-term bonds could lower costs of financing purchases of consumer durables and investment by business. The essential mechanism of transmission from lower interest rates to increases in aggregate demand is portfolio rebalancing. Withdrawal of bonds in a specific maturity segment or directly in a bond category such as currently mortgage-backed securities causes reductions in yields that are equivalent to increases in the prices of the bonds. There can be secondary increases in purchases of those bonds in private portfolios in pursuit of their increasing prices. Lower yields translate into lower costs of buying homes and consumer durables such as automobiles and lower costs of investment for business. There are two additional intended routes of transmission.

· Unconventional monetary policy or its expectation can increase stock market valuations (Bernanke 2010WP). Increases in equities traded in stock markets can augment perceptions of the wealth of consumers, inducing increases in consumption.

· Unconventional monetary policy causes devaluation of the dollar relative to other currencies, which can cause increases in net exports of the US that increase aggregate economic activity (Yellen 2011AS).

Monetary policy can lower short-term interest rates quite effectively. Lowering long-term yields is somewhat more difficult. The critical issue is that monetary policy cannot ensure that lowering interest cost increases credit, which expands consumption and investment. There is a large variety of possible allocation of funds at low interest rates from consumption and investment to multiple risk financial assets. Monetary policy does not control how investors will allocate asset categories. A critical financial practice is to borrow at low short-term interest rates to invest in high-risk, leveraged financial assets. Investors may increase in their portfolios asset categories such as equities, emerging market equities, high-yield bonds, currencies, commodity futures and options and multiple other risk financial assets including structured products. If there is risk appetite, the carry trade from zero interest rates to risk financial assets will consist of short positions at short-term interest rates (or borrowing) and short dollar assets with simultaneous long positions in high-risk, leveraged financial assets such as equities, commodities and high-yield bonds (Pelaez and Pelaez, Globalization and the State, Vol. II (2008b), 202-4). Low interest rates may induce increases in valuations of risk financial assets that may fluctuate in accordance with perceptions of risk aversion by investors and the public. During periods of muted risk aversion, carry trades from zero interest rates to exposures in risk financial assets cause temporary waves of inflation that may intensify instead of preventing financial instability. During periods of risk aversion such as fears of disruption of world financial markets and the global economy resulting from events such as collapse of the European Monetary Union, carry trades are unwound with sharp deterioration of valuations of risk financial assets. More technical discussion is in IA Appendix: Transmission of Unconventional Monetary Policy.

In the effort to increase transparency, the Federal Open Market Committee (FOMC) provides both economic projections of its participants and views on future paths of the policy rate that in the US is the federal funds rate or interest on interbank lending of reserves deposited at Federal Reserve Banks. These policies and views are discussed initially followed with appropriate analysis.

Charles Evans, President of the Federal Reserve Bank of Chicago, proposed an “economic state-contingent policy” or “7/3” approach (Evans 2012 Aug 27):

“I think the best way to provide forward guidance is by tying our policy actions to explicit measures of economic performance. There are many ways of doing this, including setting a target for the level of nominal GDP. But recognizing the difficult nature of that policy approach, I have a more modest proposal: I think the Fed should make it clear that the federal funds rate will not be increased until the unemployment rate falls below 7 percent. Knowing that rates would stay low until significant progress is made in reducing unemployment would reassure markets and the public that the Fed would not prematurely reduce its accommodation.

Based on the work I have seen, I do not expect that such policy would lead to a major problem with inflation. But I recognize that there is a chance that the models and other analysis supporting this approach could be wrong. Accordingly, I believe that the commitment to low rates should be dropped if the outlook for inflation over the medium term rises above 3 percent.

The economic conditionality in this 7/3 threshold policy would clarify our forward policy intentions greatly and provide a more meaningful guide on how long the federal funds rate will remain low. In addition, I would indicate that clear and steady progress toward stronger growth is essential.”

Evans (2012Nov27) modified the “7/3” approach to a “6.5/2.5” approach:

“I have reassessed my previous 7/3 proposal. I now think a threshold of 6-1/2 percent for the unemployment rate and an inflation safeguard of 2-1/2 percent, measured in terms of the outlook for total PCE (Personal Consumption Expenditures Price Index) inflation over the next two to three years, would be appropriate.”

The Federal Open Market Committee (FOMC) decided at its meeting on Dec 12, 2012 to implement the “6.5/2.5” approach (http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm):

“To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”

Another rising risk is division within the Federal Open Market Committee (FOMC) on risks and benefits of current policies as expressed in the minutes of the meeting held on Jan 29-30, 2013 (http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20130130.pdf 13):

“However, many participants also expressed some concerns about potential costs and risks arising from further asset purchases. Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that could undermine financial stability. Several participants noted that a very large portfolio of long-duration assets would, under certain circumstances, expose the Federal Reserve to significant capital losses when these holdings were unwound, but others pointed to offsetting factors and one noted that losses would not impede the effective operation of monetary policy.”

Jon Hilsenrath, writing on “Fed maps exit from stimulus,” on May 11, 2013, published in the Wall Street Journal (http://online.wsj.com/article/SB10001424127887324744104578475273101471896.html?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes the development of strategy for unwinding quantitative easing and how it can create uncertainty in financial markets. Jon Hilsenrath and Victoria McGrane, writing on “Fed slip over how long to keep cash spigot open,” published on Feb 20, 2013 in the Wall street Journal (http://professional.wsj.com/article/SB10001424127887323511804578298121033876536.html), analyze the minutes of the Fed, comments by members of the FOMC and data showing increase in holdings of riskier debt by investors, record issuance of junk bonds, mortgage securities and corporate loans. Jon Hilsenrath, writing on “Jobs upturn isn’t enough to satisfy Fed,” on Mar 8, 2013, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324582804578348293647760204.html), finds that much stronger labor market conditions are required for the Fed to end quantitative easing. Unconventional monetary policy with zero interest rates and quantitative easing is quite difficult to unwind because of the adverse effects of raising interest rates on valuations of risk financial assets and home prices, including the very own valuation of the securities held outright in the Fed balance sheet. Gradual unwinding of 1 percent fed funds rates from Jun 2003 to Jun 2004 by seventeen consecutive increases of 25 percentage points from Jun 2004 to Jun 2006 to reach 5.25 percent caused default of subprime mortgages and adjustable-rate mortgages linked to the overnight fed funds rate. The zero interest rate has penalized liquidity and increased risks by inducing carry trades from zero interest rates to speculative positions in risk financial assets. There is no exit from zero interest rates without provoking another financial crash.

Unconventional monetary policy, or reinvestment of principal in securities and issue of bank reserves to maintain policy interest rates below what would be without central bank intervention, will remain in perpetuity, or QE→∞, changing to a “growth mandate.” The FOMC was implementing gradual reduction of the portfolio of government securities in the balance sheet of the Fed beginning in Oct 2017. There are two reasons explaining unconventional monetary policy of QE→∞: insufficiency of job creation to reduce unemployment/underemployment at current rates of job creation; and growth of GDP at around 2.0 percent, which is well below 3.0 percent estimated by Lucas (2011May) from 1870 to 2010. Unconventional monetary policy interprets the dual mandate of low inflation and maximum employment as mainly a “growth mandate” of forcing economic growth in the US at a rate that generates full employment. A hurdle to this “growth mandate” is that long-term economic performance in the United States consisted of trend growth of GDP at 3 percent per year and of per capita GDP at 2 percent per year as measured for 1870 to 2010 by Robert E Lucas (2011May). The economy returned to trend growth after adverse events such as wars and recessions. The key characteristic of adversities such as recessions was much higher rates of growth in expansion periods that permitted the economy to recover output, income and employment losses that occurred during the contractions. Over the business cycle, the economy compensated the losses of contractions with higher growth in expansions to maintain trend growth of GDP of 3 percent and of GDP per capita of 2 percent. US economic growth has been at only 2.1 percent on average in the cyclical expansion in the 43 quarters from IIIQ2009 to IQ2020. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the second estimate of GDP for IQ2020 (https://www.bea.gov/sites/default/files/2020-05/gdp1q20_2nd.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.8 percent obtained by dividing GDP of $15,557.3 billion in IIQ2010 by GDP of $15,134.1 billion in IIQ2009 {[($15,557.3/$15,134.1) -1]100 = 2.8%], or accumulating the quarter on quarter growth rates (Section I and earlier https://cmpassocregulationblog.blogspot.com/2020/05/mediocre-cyclical-united-states.html). The expansion from IQ1983 to IQ1986 was at the average annual growth rate of 5.7 percent, 5.3 percent from IQ1983 to IIIQ1986, 5.1 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983 to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 4.9 percent from IQ1983 to IIIQ1987, 5.0 percent from IQ1983 to IVQ1987, 4.9 percent from IQ1983 to IIQ1988, 4.8 percent from IQ1983 to IIIQ1988, 4.8 percent from IQ1983 to IVQ1988, 4.8 percent from IQ1983 to IQ1989, 4.7 percent from IQ1983 to IIQ1989, 4.6 percent from IQ1983 to IIIQ1989, 4.5 percent from IQ1983 to IVQ1989. 4.5 percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990, 4.3 percent from IQ1983 to IIIQ1990, 4.0 percent from IQ1983 to IVQ1990, 3.8 percent from IQ1983 to IQ1991, 3.8 percent from IQ1983 to IIQ1991, 3.8 percent from IQ1983 to IIIQ1991, 3.7 percent from IQ1983 to IVQ1991, 3.7 percent from IQ1983 to IQ1992, 3.7 percent from IQ1983 to IIQ1992, 3.7 percent from IQ1983 to IIIQ2019, 3.8 percent from IQ1983 to IVQ1992, 3.7 percent from IQ1983 to IQ1993, 3.6 percent from IQ1983 to IIQ1993, 3.6 percent from IQ1983 to IIIQ1993 and at 7.9 percent from IQ1983 to IVQ1983 (Section I and earlier https://cmpassocregulationblog.blogspot.com/2020/05/mediocre-cyclical-united-states.html). The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (https://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (https://apps.bea.gov/iTable/index_nipa.cfm). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IQ2020 and the lockdown of economic activity in COVID-19 would have accumulated to 43.6 percent. GDP in IQ2020 would be $22,634.2 billion (in constant dollars of 2012) if the US had grown at trend, which is higher by $3659.5 billion than actual $18,974.7billion. There are more than three trillion dollars of GDP less than at trend, explaining the 51.6 million unemployed or underemployed equivalent to actual unemployment/underemployment of 30.0 percent of the effective labor force with the largest part originating in the lockdown of economic activity in the COVID-19 event (https://cmpassocregulationblog.blogspot.com/2020/05/fifty-two-million-unemployed-or.html and earlier https://cmpassocregulationblog.blogspot.com/2020/04/lockdown-of-economic-activity-in.html). Unemployment is increasing sharply while employment is declining rapidly because of the lockdown of economic activity in the probable global recession resulting from the COVID-19 event (https://www.bls.gov/cps/employment-situation-covid19-faq-april-2020.pdf). US GDP in IQ2020 is 16.2 percent lower than at trend. US GDP grew from $15,762.0 billion in IVQ2007 in constant dollars to $18,974.7 billion in IQ2020 or 20.4 percent at the average annual equivalent rate of 1.5 percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. Cochrane (2016May02) measures GDP growth in the US at average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per year from 2000 to 2015 with only at 2.0 percent annual equivalent in the current expansion. Cochrane (2016May02) proposes drastic changes in regulation and legal obstacles to private economic activity. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. There is similar behavior in manufacturing. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 2.9 percent per year from Apr 1919 to Apr 2020. Growth at 2.9 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 154.0798 in Apr 2020. The actual index NSA in Apr 2020 is 84.8550 which is 44.9 percent below trend. The deterioration of manufacturing in Apr 2020 originates in the lockdown of economic activity in the COVID-19 event. Manufacturing grew at the average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 161.6318 in Apr 2020. The actual index NSA in Apr 2020 is 84.8550, which is 47.5 percent below trend. Manufacturing output grew at average 1.3 percent between Dec 1986 and Apr 2020. Using trend growth of 1.3 percent per year, the index would increase to 127.0007 in Apr 2020. The output of manufacturing at 84.8550 in Apr 2020 is 33.2 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index decreased from 86.3800 in Apr 2009 to 85.8317 in Apr 2020 or minus 0.6 percent. The NAICS manufacturing index increased at the annual equivalent rate of 3.5 percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the NAICS manufacturing output index from 106.6777 in Dec 2007 to 163.0563 in Apr 2020. The NAICS index at 85.8317 in Apr 2020 is 47.4 below trend. The NAICS manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999 to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output index from 106.6777 in Dec 2007 to 131.3304 in Apr 2020. The NAICS index at 85.8317 in Apr 2020 is 34.6 percent below trend under this alternative calculation.

First, total nonfarm payroll employment seasonally adjusted (SA) decreased 20.500 million in Apr 2020 and private payroll employment decreased 19.250 million. The Bureau of Labor Statistics states (https://www.bls.gov/news.release/empsit.nr0.htm): “Our analysis suggests that the net effect of these hurricanes [Harvey and Irma] was to reduce the estimate of total nonfarm payroll employment for September. There was no discernible effect on the national unemployment rate. No changes were made to either the establishment or household survey estimation procedures for the September figures.” A hurdle in analyzing the labor market is the likelihood of a global recession caused by the closure of economic activity in the attempt to mitigate infections in the COVID-19 event (https://www.bls.gov/cps/employment-situation-covid19-faq-april-2020.pdf). The average monthly number of nonfarm jobs created from Apr 2018 to Apr 2019 was 175,083 using seasonally adjusted data, while the average number of nonfarm jobs reduced from Apr 2019 to Apr 2020 was minus 1,621 or decrease by 100.9 percent. The average number of private jobs created in the US from Apr 2018 to Apr 2019 was 163,500, using seasonally adjusted data, while the average from Apr 2019 to Apr 2020 was minus 1,553 or decrease by 100.9 percent. This blog calculates the effective labor force of the US at 172.051 million in Apr 2020 and 171.255 million in Apr 2019 (Table I-4), for growth of 0.796 million at average 66,333 per month. This situation will continue to deteriorate and the return to fuller employment is unpredictable.

Closing the economy to mitigate the infection of COVID-19 could result in another probable global recession. The number employed in Apr 2020 was 133.326 million (NSA) or 13,989 million fewer people with jobs relative to the peak of 147.315 million in Aug 2007 while the civilian noninstitutional population of ages 16 years and over increased from 231.958 million in Jul 2007 to 259.896 million in Apr 2020 or by 27.938 million. The number employed decreased 9.5 percent from Jul 2007 to Apr 2020 while the noninstitutional civilian population of ages of 16 years and over, or those available for work, increased 12.0 percent. The ratio of employment to population in Jul 2007 was 63.5 percent (147.315 million employed as percent of population of 231.958 million). The same ratio in Apr 2020 would result in 165.034 million jobs (0.635 multiplied by noninstitutional civilian population of 259,896 million). There are effectively 31.708 million fewer jobs in Apr 2020 than in Jul 2007, or 165.034 million minus 133.326 million. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs.

Second, long-term economic performance in the United States consisted of trend growth of GDP at 3 percent per year and of per capita GDP at 2 percent per year as measured for 1870 to 2010 by Robert E Lucas (2011May). The economy returned to trend growth after adverse events such as wars and recessions. The key characteristic of adversities such as recessions was much higher rates of growth in expansion periods that permitted the economy to recover output, income and employment losses that occurred during the contractions. Over the business cycle, the economy compensated the losses of contractions with higher growth in expansions to maintain trend growth of GDP of 3 percent and of GDP per capita of 2 percent. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. US economic growth has been at only 2.1 percent on average in the cyclical expansion in the 43 quarters from IIIQ2009 to IQ2020. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the second estimate of GDP for IQ2020 (https://www.bea.gov/sites/default/files/2020-05/gdp1q20_2nd.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.8 percent obtained by dividing GDP of $15,557.3 billion in IIQ2010 by GDP of $15,134.1 billion in IIQ2009 {[($15,557.3/$15,134.1) -1]100 = 2.8%], or accumulating the quarter on quarter growth rates (Section I and earlier https://cmpassocregulationblog.blogspot.com/2020/05/mediocre-cyclical-united-states.html). The expansion from IQ1983 to IQ1986 was at the average annual growth rate of 5.7 percent, 5.3 percent from IQ1983 to IIIQ1986, 5.1 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983 to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 4.9 percent from IQ1983 to IIIQ1987, 5.0 percent from IQ1983 to IVQ1987, 4.9 percent from IQ1983 to IIQ1988, 4.8 percent from IQ1983 to IIIQ1988, 4.8 percent from IQ1983 to IVQ1988, 4.8 percent from IQ1983 to IQ1989, 4.7 percent from IQ1983 to IIQ1989, 4.6 percent from IQ1983 to IIIQ1989, 4.5 percent from IQ1983 to IVQ1989. 4.5 percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990, 4.3 percent from IQ1983 to IIIQ1990, 4.0 percent from IQ1983 to IVQ1990, 3.8 percent from IQ1983 to IQ1991, 3.8 percent from IQ1983 to IIQ1991, 3.8 percent from IQ1983 to IIIQ1991, 3.7 percent from IQ1983 to IVQ1991, 3.7 percent from IQ1983 to IQ1992, 3.7 percent from IQ1983 to IIQ1992, 3.7 percent from IQ1983 to IIIQ2019, 3.8 percent from IQ1983 to IVQ1992, 3.7 percent from IQ1983 to IQ1993, 3.6 percent from IQ1983 to IIQ1993, 3.6 percent from IQ1983 to IIIQ1993 and at 7.9 percent from IQ1983 to IVQ1983 (Section I and earlier https://cmpassocregulationblog.blogspot.com/2020/05/mediocre-cyclical-united-states.html). The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (https://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (https://apps.bea.gov/iTable/index_nipa.cfm). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IQ2020 and the lockdown of economic activity in COVID-19 would have accumulated to 43.6 percent. GDP in IQ2020 would be $22,634.2 billion (in constant dollars of 2012) if the US had grown at trend, which is higher by $3659.5 billion than actual $18,974.7billion. There are more than three trillion dollars of GDP less than at trend, explaining the 51.6 million unemployed or underemployed equivalent to actual unemployment/underemployment of 30.0 percent of the effective labor force with the largest part originating in the lockdown of economic activity in the COVID-19 event (https://cmpassocregulationblog.blogspot.com/2020/05/fifty-two-million-unemployed-or.html and earlier https://cmpassocregulationblog.blogspot.com/2020/04/lockdown-of-economic-activity-in.html). Unemployment is increasing sharply while employment is declining rapidly because of the lockdown of economic activity in the probable global recession resulting from the COVID-19 event (https://www.bls.gov/cps/employment-situation-covid19-faq-april-2020.pdf). US GDP in IQ2020 is 16.2 percent lower than at trend. US GDP grew from $15,762.0 billion in IVQ2007 in constant dollars to $18,974.7 billion in IQ2020 or 20.4 percent at the average annual equivalent rate of 1.5 percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. Cochrane (2016May02) measures GDP growth in the US at average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per year from 2000 to 2015 with only at 2.0 percent annual equivalent in the current expansion. Cochrane (2016May02) proposes drastic changes in regulation and legal obstacles to private economic activity. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. There is similar behavior in manufacturing. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 2.9 percent per year from Apr 1919 to Apr 2020. Growth at 2.9 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 154.0798 in Apr 2020. The actual index NSA in Apr 2020 is 84.8550 which is 44.9 percent below trend. The deterioration of manufacturing in Apr 2020 originates in the lockdown of economic activity in the COVID-19 event. Manufacturing grew at the average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 161.6318 in Apr 2020. The actual index NSA in Apr 2020 is 84.8550, which is 47.5 percent below trend. Manufacturing output grew at average 1.3 percent between Dec 1986 and Apr 2020. Using trend growth of 1.3 percent per year, the index would increase to 127.0007 in Apr 2020. The output of manufacturing at 84.8550 in Apr 2020 is 33.2 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index decreased from 86.3800 in Apr 2009 to 85.8317 in Apr 2020 or minus 0.6 percent. The NAICS manufacturing index increased at the annual equivalent rate of 3.5 percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the NAICS manufacturing output index from 106.6777 in Dec 2007 to 163.0563 in Apr 2020. The NAICS index at 85.8317 in Apr 2020 is 47.4 below trend. The NAICS manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999 to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output index from 106.6777 in Dec 2007 to 131.3304 in Apr 2020. The NAICS index at 85.8317 in Apr 2020 is 34.6 percent below trend under this alternative calculation.

The economy of the US can be summarized in growth of economic activity or GDP as fluctuating from mediocre growth of 2.6 percent on an annual basis in 2010 to 1.6 percent in 2011, 2.2 percent in 2012, 1.8 percent in 2013, 2.5 percent in 2014 and 2.9 percent in 2015. GDP growth was 1.6 percent in 2016 and 2.4 percent in 2017. GDP growth was 2.9 percent in 2018 and 2.3 percent in 2019. The following calculations show that actual growth is around 2.1 percent per year during the expansion phase. The rate of growth of 1.7 percent in the entire cycle from 2007 to 2019 is well below 3 percent per year in trend from 1870 to 2010, which the economy of the US always attained for entire cycles in expansions after events such as wars and recessions (Lucas 2011May). Revisions and enhancements of United States GDP and personal income accounts by the Bureau of Economic Analysis (BEA) (https://apps.bea.gov/iTable/index_nipa.cfm) provides valuable information on long-term growth and cyclical behavior. Table Summary provides relevant data.

Table Summary, Long-term and Cyclical Growth of GDP, Real Disposable Income and Real Disposable Income per Capita

	GDP
Long-Term
1929-2019	3.2
1947-2019	3.2
Whole Cycles
1980-1989	3.5
2006-2019	1.7
2007-2019	1.7
Cyclical Contractions ∆%
IQ1980 to IIIQ1980, IIIQ1981 to IVQ1982	-4.8
IVQ2007 to IIQ2009	-4.0
Cyclical Expansions Average Annual Equivalent ∆%
IQ1983 to IVQ1985 IQ1983-IQ1986 IQ1983-IIIQ1986 IQ1983-IVQ1986 IQ1983-IQ1987 IQ1983-IIQ1987 IQ1983-IIIQ1987 IQ1983 to IVQ1987 IQ1983 to IQ1988 IQ1983 to IIQ1988 IQ1983 to IIIQ1988 IQ1983 to IVQ1988 IQ1983 to IQ1989 IQ1983 to IIQ1989 IQ1983 to IIIQ1989 IQ1983 to IVQ1989 IQ1983 to IQ1990 IQ1983 to IIQ1990 IQ1983 to IIIQ1990 IQ1983 to IVQ1990	5.9 5.7 5.3 5.1 5.0 5.0 4.9 5.0 4.9 4.9 4.8 4.8 4.8 4.7 4.6 4.5 4.5 4.4 4.3 4.0
IQ1983 to IQ1991 IQ1983 to IIQ1991 IQ1983 to IIIQ1991 IQ1983 to IVQ1991 IQ1983 to IQ1992 IQ1983 to IIQ1992 IQ1983 to IIIQ1992 IQ1983 to IVQ1992 IQ1983 to IQ1993 IQ1983 to IIQ1993 IQ1983 to IIIQ1993	3.8 3.8 3.8 3.7 3.7 3.7 3.7 3.8 3.7 3.6 3.6
First Four Quarters IQ1983 to IVQ1983	7.9
IIIQ2009 to IQ2020	2.1
First Four Quarters IIIQ2009 to IIQ2010	2.8
	Real Disposable Income	Real Disposable Income per Capita
Long-Term
1929-2019	3.2	2.0
1947-1999	3.7	2.3
Whole Cycles
1980-1989	3.5	2.6
2006-2019	2.2	1.5

Source: Bureau of Economic Analysis

https://apps.bea.gov/iTable/index_nipa.cfm

The revisions and enhancements of United States GDP and personal income accounts by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) also provide critical information in assessing the current rhythm of US economic growth. The economy appears to be moving at a pace around 2.3 percent per year. Table Summary GDP provides the data.

Average Annual Growth in the Past Thirty-Three Quarters. GDP growth in the four quarters of 2012, the four quarters of 2013, the four quarters of 2014, the four quarters of 2015, the four quarters of 2016, the four quarters of 2017, the four quarters of 2018, the four quarters of 2019 and the first quarter of 2020 accumulated to 18.6 percent. This growth is equivalent to 2.1 percent per year, obtained by dividing GDP in IQ2020 of $18,974.7 billion by GDP in IVQ2011 of $16,004.1 billion and compounding by 4/33: {[($18,974.7/$16,004.1)^4/33 -1]100 = 2.1 percent}.
Average Annual Growth in the Past Four Quarters. GDP growth in the four quarters from IQ2019 to IQ2020 accumulated to 0.2 percent that is equivalent to 0.2 percent in a year. This is obtained by dividing GDP in IQ2020 of $18,974.7 billion by GDP in IQ2019 of $18,927.3 billion and compounding by 4/4: {[($18,974.7/$18,927.3)^4/4 -1]100 = 0.2%}. The US economy grew 0.2 percent in IQ2020 relative to the same quarter a year earlier in IQ2019 (See Table 6 at https://www.bea.gov/sites/default/files/2020-05/gdp1q20_2nd.pdf and the complete data at https://apps.bea.gov/iTable/index_nipa.cfm). Growth was at annual equivalent 5.5 percent in IIQ2014 and 5.0 percent IIIQ2014 and only at 2.3 percent in IVQ2014. GDP grew at annual equivalent 3.2 percent in IQ2015, 3.0 percent in IIQ2015, 1.3 percent in IIIQ2015 and 0.1 percent in IVQ2015. GDP grew at annual equivalent 2.0 percent in IQ2016 and at 1.9 percent annual equivalent in IIQ2016. GDP increased at 2.2 percent annual equivalent in IIIQ2016 and at 2.0 percent in IVQ2016. GDP grew at annual equivalent 2.3 percent in IQ2017 and at annual equivalent 2.2 percent in IIQ2017. GDP grew at annual equivalent 3.2 percent in IIIQ2017. GDP grew at annual equivalent 3.5 percent in IVQ2017. GDP grew at annual equivalent 2.5 percent in IQ2018, increasing at 3.5 percent annual equivalent in IIQ2018. GDP grew at annual equivalent 2.9 percent in IIIQ2018 and at 1.1 percent in IVQ2018. GDP grew at annual equivalent 3.1 percent in IQ2019 and at annual equivalent 2.0 percent in IIQ2019. GDP grew at annual equivalent 2.1 percent in IIIQ2019 and at 2.1 percent annual equivalent in IVQ2019. Growth was at annual equivalent minus 5.0 percent in IQ2020. Another important revelation of the revisions and enhancements is that GDP was flat at 0.1 in IVQ2012, which is in the borderline of contraction, and negative in IQ2014. US GDP fell 0.3 percent in IQ2014. The rate of growth of GDP in the revision of IIIQ2013 is 3.2 percent in seasonally adjusted annual rate (SAAR).

Table Summary GDP, US, Real GDP and Percentage Change Relative to IVQ2007 and Prior Quarter, Billions Chained 2012 Dollars and ∆%

	Real GDP, Billions Chained 2012 Dollars	∆% Relative to IVQ2007	∆% Relative to Prior Quarter	∆% over Year Earlier
IVQ2007	15,762.0	NA	0.6	2.0
IVQ2011	16,004.1	1.5	1.2	1.6
IQ2012	16,129.5	2.3	0.8	2.7
IIQ2012	16,198.8	2.8	0.4	2.4
IIIQ2012	16,220.7	2.9	0.1	2.5
IVQ2012	16,239.1	3.0	0.1	1.5
IQ2013	16,383.0	3.9	0.9	1.6
IIQ2013	16,403.2	4.1	0.1	1.3
IIIQ2013	16,531.7	4.9	0.8	1.9
IVQ2013	16,663.6	5.7	0.8	2.6
IQ2014	16,616.5	5.4	-0.3	1.4
IIQ2014	16,841.5	6.8	1.4	2.7
IIIQ2014	17,047.1	8.2	1.2	3.1
IVQ2014	17,143.0	8.8	0.6	2.9
IQ2015	17,277.6	9.6	0.8	4.0
IIQ2015	17,405.7	10.4	0.7	3.4
IIIQ2015	17,463.2	10.8	0.3	2.4
IVQ2015	17,468.9	10.8	0.0	1.9
IQ2016	17,556.8	11.4	0.5	1.6
IIQ2016	17,639.4	11.9	0.5	1.3
IIIQ2016	17,735.1	12.5	0.5	1.6
IVQ2016	17,824.2	13.1	0.5	2.0
IQ2017	17,925.3	13.7	0.6	2.1
IIQ2017	18,021.0	14.3	0.5	2.2
IIIQ2017	18,163.6	15.2	0.8	2.4
IVQ2017	18,322.5	16.2	0.9	2.8
IQ2018	18,438.3	17.0	0.6	2.9
IIQ2018	18,598.1	18.0	0.9	3.2
IIIQ2018	18,732.7	18.8	0.7	3.1
IVQ2018	18,783.5	19.2	0.3	2.5
IQ2019	18,927.3	20.1	0.8	2.7
IIQ2019	19,021.9	20.7	0.5	2.3
IIIQ2019	19,121.1	21.3	0.5	2.1
IVQ2019	19,222.0	22.0	0.5	2.3
IQ2020	18,974.7	20.4	-1.3	0.2
Cumulative ∆% IQ2012 to IQ2020	18.6
Annual Equivalent ∆%	2.1

Source: US Bureau of Economic Analysis https://apps.bea.gov/iTable/index_nipa.cfm

Chart GDP of the US Bureau of Economic Analysis provides the rates of growth of GDP at SAAR (seasonally adjusted annual rate) in the 16 quarters from IIQ2016 to IQ2020. Growth has been fluctuating. The final data point is minus 5.0 percent in the COVID-19 probable global recession.

Chart GDP, Seasonally Adjusted Quarterly Rates of Growth of United States GDP, ∆%

Source: US Bureau of Economic Analysis

https://www.bea.gov/data/gdp/gross-domestic-product

In fact, it is evident to the public that this policy will be abandoned if inflation costs rise. There is concern of the production and employment costs of controlling future inflation. Even if there is no inflation, QE→∞, or reinvestment of principal in securities and issue of bank reserves to maintain interest rates below what would be without central bank intervention, cannot be abandoned because of the fear of rising interest rates. The FOMC was implementing gradual reduction of the portfolio of government securities in the balance sheet of the Fed. The economy would operate in an inferior allocation of resources and suboptimal growth path, or interior point of the production possibilities frontier where the optimum of productive efficiency and wellbeing is attained, because of the distortion of risk/return decisions caused by perpetual financial repression. Not even a second-best allocation is feasible with the shocks to efficiency of financial repression in perpetuity.

The statement of the FOMC at the conclusion of its meeting on Dec 12, 2012, revealed policy intentions (http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm). The FOMC updated in the statement at its meeting on Dec 16, 2015 with maintenance of the current level of the balance sheet and liftoff of interest rates (http://www.federalreserve.gov/newsevents/press/monetary/20151216a.htm) followed by the statement of Apr 29, 2020 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200429a.htm):

April 29, 2020

Federal Reserve issues FOMC statement

For release at 2:00 p.m. EDT

The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health are inducing sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices are holding down consumer price inflation. The disruptions to economic activity here and abroad have significantly affected financial conditions and have impaired the flow of credit to U.S. households and businesses.

The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

To support the flow of credit to households and businesses, the Federal Reserve will continue to purchase Treasury securities and agency residential and commercial mortgage-backed securities in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor market conditions and is prepared to adjust its plans as appropriate.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.

Implementation Note issued April 29, 2020

There are several important issues in this statement.

Mandate. The FOMC pursues a policy of attaining its “dual mandate:” (https://www.federalreserve.gov/aboutthefed.htm): “The Federal Reserve System is the central bank of the United States. It performs five general functions to promote the effective operation of the U.S. economy and, more generally, the public interest. The Federal Reserve: “

conducts the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy;
promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad;
promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole;
fosters payment and settlement system safety and efficiency through services to the banking industry and the U.S. government that facilitate U.S.-dollar transactions and payments; and
promotes consumer protection and community development through consumer-focused supervision and examination, research and analysis of emerging consumer issues and trends, community economic development activities, and the administration of consumer laws and regulations.”

Unchanged Policy Interest Rates: “The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
New Advance Guidance. “The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments” (emphasis added).
Concern with Inflation and Symmetric Inflation Goal. “The Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective” (emphasis added).
New Quantitative Easing and Other Measures: “The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals. To support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion. The Committee will also reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Open Market Desk has recently expanded its overnight and term repurchase agreement operations. The Committee will continue to closely monitor market conditions and is prepared to adjust its plans as appropriate.”
Forecast Dependent Policy. In the Opening Remarks to the Press Conference on Jan 30, 2019, the Chairman of the Federal Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190130.pdf): “Today, the FOMC decided that the cumulative effects of those developments over the last several months warrant a patient, wait-and-see approach regarding future policy changes. In particular, our statement today says, “In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate.” This change was not driven by a major shift in the baseline outlook for the economy. Like many forecasters, we still see “sustained expansion of economic activity, strong labor market conditions, and inflation near … 2 percent” as the likeliest case. But the cross-currents I mentioned suggest the risk of a less-favorable outlook. In addition, the case for raising rates has weakened somewhat. The traditional case for rate increases is to protect the economy from risks that arise when rates are too low for too long, particularly the risk of too-high inflation. Over the past few months, that risk appears to have diminished. Inflation readings have been muted, and the recent drop in oil prices is likely to Page 3 of 5 push headline inflation lower still in coming months. Further, as we noted in our post-meeting statement, while survey-based measures of inflation expectations have been stable, financial market measures of inflation compensation have moved lower. Similarly, the risk of financial imbalances appears to have receded, as a number of indicators that showed elevated levels of financial risk appetite last fall have moved closer to historical norms. In this environment, we believe we can best support the economy by being patient in evaluating the outlook before making any future adjustment to policy.” In the opening remarks to the Mar 20, 2019, the Chairman of the Federal Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190320.pdf): “In discussing the Committee’s projections, it is useful to note what those projections are, as well as what they are not. The SEP includes participants’ individual projections of the most likely economic scenario along with their views of the appropriate path of the federal funds rate in that scenario. Views about the most likely scenario form one input into our policy discussions. We also discuss other plausible scenarios, including the risk of more worrisome outcomes. These and other scenarios and many other considerations go into policy, but are not reflected in projections of the most likely case. Thus, we always emphasize that the interest rate projections in the SEP are not a Committee decision. They are not a Committee plan. As Chair Yellen noted some years ago, the FOMC statement, rather than the dot plot, is the device that the Committee uses to express its opinions about the likely path of rates.”

Focus is shifting from tapering quantitative easing by the Federal Open Market Committee (FOMC). There is sharp distinction between the two measures of unconventional monetary policy: (1) fixing of the overnight rate of fed funds now currently at 0 to ¼ percent and (2) outright purchase of Treasury and agency securities and mortgage-backed securities for the balance sheet of the Federal Reserve. Markets overreacted to the so-called “paring” of outright purchases to $25 billion of securities per month for the balance sheet of the Fed. What is truly important is the fixing of the overnight fed funds at 0 to ¼ percent (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200429a.htm): “The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” There are multiple new policy measures, including purchases of Treasury securities and mortgage-backed securities for the balance sheet of the Fed (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm): “The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals. To support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion. The Committee will also reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Open Market Desk has recently expanded its overnight and term repurchase agreement operations. The Committee will continue to closely monitor market conditions and is prepared to adjust its plans as appropriate.”

In the Opening Remarks to the Press Conference on Oct 30, 2019, the Chairman of the Federal Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20191030.pdf): “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market, and inflation near our symmetric 2 percent objective. We believe monetary policy is in a good place to achieve these outcomes. Looking ahead, we will be monitoring the effects of our policy actions, along with other information bearing on the outlook, as we assess the appropriate path of the target range for the fed funds rate. Of course, if developments emerge that cause a material reassessment of our outlook, we would respond accordingly. Policy is not on a preset course.” In the Opening Remarks to the Press Conference on Jan 30, 2019, the Chairman of the Federal Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190130.pdf): “Today, the FOMC decided that the cumulative effects of those developments over the last several months warrant a patient, wait-and-see approach regarding future policy changes. In particular, our statement today says, “In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate.” This change was not driven by a major shift in the baseline outlook for the economy. Like many forecasters, we still see “sustained expansion of economic activity, strong labor market conditions, and inflation near … 2 percent” as the likeliest case. But the cross-currents I mentioned suggest the risk of a less-favorable outlook. In addition, the case for raising rates has weakened somewhat. The traditional case for rate increases is to protect the economy from risks that arise when rates are too low for too long, particularly the risk of too-high inflation. Over the past few months, that risk appears to have diminished. Inflation readings have been muted, and the recent drop in oil prices is likely to Page 3 of 5 push headline inflation lower still in coming months. Further, as we noted in our post-meeting statement, while survey-based measures of inflation expectations have been stable, financial market measures of inflation compensation have moved lower. Similarly, the risk of financial imbalances appears to have receded, as a number of indicators that showed elevated levels of financial risk appetite last fall have moved closer to historical norms. In this environment, we believe we can best support the economy by being patient in evaluating the outlook before making any future adjustment to policy.” The FOMC is initiating the “normalization” or reduction of the balance sheet of securities held outright for monetary policy (https://www.federalreserve.gov/newsevents/pressreleases/monetary20190130c.htm) with significant changes (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190320.pdf). In the opening remarks to the Mar 20, 2019, the Chairman of the Federal Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190320.pdf): “In discussing the Committee’s projections, it is useful to note what those projections are, as well as what they are not. The SEP includes participants’ individual projections of the most likely economic scenario along with their views of the appropriate path of the federal funds rate in that scenario. Views about the most likely scenario form one input into our policy discussions. We also discuss other plausible scenarios, including the risk of more worrisome outcomes. These and other scenarios and many other considerations go into policy, but are not reflected in projections of the most likely case. Thus, we always emphasize that the interest rate projections in the SEP are not a Committee decision. They are not a Committee plan. As Chair Yellen noted some years ago, the FOMC statement, rather than the dot plot, is the device that the Committee uses to express its opinions about the likely path of rates.”

In the Introductory Statement on Jul 25, 2019, in Frankfurt am Main, the President of the European Central Bank, Mario Draghi, stated (https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is190725~547f29c369.en.html): “Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We expect them to remain at their present or lower levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to our aim over the medium term.

We intend to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when we start raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.” At its meeting on September 12, 2019, the Governing Council of the ECB (European Central Bank), decided to (https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190912~08de50b4d2.en.html): (1) decrease the deposit facility by 10 basis points to minus 0.50 percent while maintaining at 0.00 the main refinancing operations rate and at 0.25 percent the marginal lending facility rate; (2) restart net purchases of securities at the monthly rate of €20 billion beginning on Nov 1, 2019; (3) reinvest principal payments from maturing securities; (4) adapt long-term refinancing operations to maintain “favorable bank lending conditions;” and (5) exempt part of the “negative deposit facility rate” on bank excess liquidity.

The Federal Open Market Committee (FOMC) decided to lower the target range of the federal funds rate by 0.50 percent to 1.0 to 1¼ percent on Mar 3, 2020 in a decision outside the calendar meetings (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200303a.htm):

March 03, 2020

Federal Reserve issues FOMC statement

For release at 10:00 a.m. EST

The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1‑1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.

For media inquiries, call 202-452-2955.

Implementation Note issued March 3, 2020

How long is “considerable time”? At the press conference following the meeting on Mar 19, 2014, Chair Yellen answered a question of Jon Hilsenrath of the Wall Street Journal explaining “In particular, the Committee has endorsed the view that it anticipates that will be a considerable period after the asset purchase program ends before it will be appropriate to begin to raise rates. And of course on our present path, well, that's not utterly preset. We would be looking at next, next fall. So, I think that's important guidance” (http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20140319.pdf). Many focused on “next fall,” ignoring that the path of increasing rates is not “utterly preset.”

At the press conference following the meeting on Dec 17, 2014, Chair Yellen answered a question by Jon Hilseranth of the Wall Street Journal explaining “patience” (http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20141217.pdf):

“So I did say that this statement that the committee can be patient should be interpreted as meaning that it is unlikely to begin the normalization process, for at least the next couple of meetings. Now that doesn't point to any preset or predetermined time at which normalization is -- will begin. There are a range of views on the committee, and it will be dependent on how incoming data bears on the progress, the economy is making. First of all, I want to emphasize that no meeting is completely off the table in the sense that if we do see faster progress toward our objectives than we currently expect, then it is possible that the process of normalization would occur sooner than we now anticipated. And of course the converse is also true. So at this point, we think it unlikely that it will be appropriate, that we will see conditions for at least the next couple of meetings that will make it appropriate for us to decide to begin normalization. A number of committee participants have indicated that in their view, conditions could be appropriate by the middle of next year. But there is no preset time.”

Chair Yellen explained the removal of the word “patience” from the advanced guidance at the press conference following the FOMC meeting on Mar 18, 2015(http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20150318.pdf):

“In other words, just because we removed the word “patient” from the statement doesn’t mean we are going to be impatient. Moreover, even after the initial increase in the target funds rate, our policy is likely to remain highly accommodative to support continued progress toward our objectives of maximum employment and 2 percent inflation.”

At a speech on Mar 31, 2014, Chair Yellen analyzed labor market conditions as follows (http://www.federalreserve.gov/newsevents/speech/yellen20140331a.htm):

“And based on the evidence available, it is clear to me that the U.S. economy is still considerably short of the two goals assigned to the Federal Reserve by the Congress. The first of those goals is maximum sustainable employment, the highest level of employment that can be sustained while maintaining a stable inflation rate. Most of my colleagues on the Federal Open Market Committee and I estimate that the unemployment rate consistent with maximum sustainable employment is now between 5.2 percent and 5.6 percent, well below the 6.7 percent rate in February.

Let me explain what I mean by that word "slack" and why it is so important.

Slack means that there are significantly more people willing and capable of filling a job than there are jobs for them to fill. During a period of little or no slack, there still may be vacant jobs and people who want to work, but a large share of those willing to work lack the skills or are otherwise not well suited for the jobs that are available. With 6.7 percent unemployment, it might seem that there must be a lot of slack in the U.S. economy, but there are reasons why that may not be true.”

Yellen (2014Aug22) provides comprehensive review of the theory and measurement of labor markets. Monetary policy pursues a policy of attaining its “dual mandate” of (http://www.federalreserve.gov/aboutthefed/mission.htm):

“Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates”

Yellen (2014Aug22) finds that the unemployment rate is not sufficient in determining slack:

“One convenient way to summarize the information contained in a large number of indicators is through the use of so-called factor models. Following this methodology, Federal Reserve Board staff developed a labor market conditions index from 19 labor market indicators, including four I just discussed. This broadly based metric supports the conclusion that the labor market has improved significantly over the past year, but it also suggests that the decline in the unemployment rate over this period somewhat overstates the improvement in overall labor market conditions.”

Yellen (2014Aug22) restates that the FOMC determines monetary policy on newly available information and interpretation of labor markets and inflation and does not follow a preset path:

“But if progress in the labor market continues to be more rapid than anticipated by the Committee or if inflation moves up more rapidly than anticipated, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target could come sooner than the Committee currently expects and could be more rapid thereafter. Of course, if economic performance turns out to be disappointing and progress toward our goals proceeds more slowly than we expect, then the future path of interest rates likely would be more accommodative than we currently anticipate. As I have noted many times, monetary policy is not on a preset path. The Committee will be closely monitoring incoming information on the labor market and inflation in determining the appropriate stance of monetary policy.”

Yellen (2014Aug22) states that “Historically, slack has accounted for only a small portion of the fluctuations in inflation. Indeed, unusual aspects of the current recovery may have shifted the lead-lag relationship between a tightening labor market and rising inflation pressures in either direction.”

The minutes of the meeting of the Federal Open Market Committee (FOMC) on Sep 16-17, 2014, reveal concern with global economic conditions (http://www.federalreserve.gov/monetarypolicy/fomcminutes20140917.htm):

“Most viewed the risks to the outlook for economic activity and the labor market as broadly balanced. However, a number of participants noted that economic growth over the medium term might be slower than they expected if foreign economic growth came in weaker than anticipated, structural productivity continued to increase only slowly, or the recovery in residential construction continued to lag.”

There is similar concern in the minutes of the meeting of the FOMC on Dec 16-17, 2014 (http://www.federalreserve.gov/monetarypolicy/fomcminutes20141217.htm):

“In their discussion of the foreign economic outlook, participants noted that the implications of the drop in crude oil prices would differ across regions, especially if the price declines affected inflation expectations and financial markets; a few participants said that the effect on overseas employment and output as a whole was likely to be positive. While some participants had lowered their assessments of the prospects for global economic growth, several noted that the likelihood of further responses by policymakers abroad had increased. Several participants indicated that they expected slower economic growth abroad to negatively affect the U.S. economy, principally through lower net exports, but the net effect of lower oil prices on U.S. economic activity was anticipated to be positive.”

Chair Yellen analyzes the view of inflation (http://www.federalreserve.gov/newsevents/speech/yellen20140416a.htm):

“Inflation, as measured by the price index for personal consumption expenditures, has slowed from an annual rate of about 2-1/2 percent in early 2012 to less than 1 percent in February of this year. This rate is well below the Committee's 2 percent longer-run objective. Many advanced economies are observing a similar softness in inflation.

To some extent, the low rate of inflation seems due to influences that are likely to be temporary, including a deceleration in consumer energy prices and outright declines in core import prices in recent quarters. Longer-run inflation expectations have remained remarkably steady, however. We anticipate that, as the effects of transitory factors subside and as labor market gains continue, inflation will gradually move back toward 2 percent.”

There is a critical phrase in the statement of Sep 19, 2013 (http://www.federalreserve.gov/newsevents/press/monetary/20130918a.htm): “but mortgage rates have risen further.” Did the increase of mortgage rates influence the decision of the FOMC not to taper? Is FOMC “communication” and “guidance” successful? Will the FOMC increase purchases of mortgage-backed securities if mortgage rates increase?

A competing event is the high level of valuations of risk financial assets (https://cmpassocregulationblog.blogspot.com/2018/01/twenty-three-million-unemployed-or.html and earlier https://cmpassocregulationblog.blogspot.com/2017/12/twenty-one-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2017/01/unconventional-monetary-policy-and.html and earlier http://cmpassocregulationblog.blogspot.com/2016/01/unconventional-monetary-policy-and.html and earlier http://cmpassocregulationblog.blogspot.com/2015/01/peaking-valuations-of-risk-financial.html and earlier http://cmpassocregulationblog.blogspot.com/2014/01/theory-and-reality-of-secular.html). Matt Jarzemsky, writing on “Dow industrials set record,” on Mar 5, 2013, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324156204578275560657416332.html), analyzes that the DJIA broke the closing high of 14,164.53 set on Oct 9, 2007, and subsequently also broke the intraday high of 14,198.10 reached on Oct 11, 2007. The DJIA closed at 25,383.11 on May 29, 2019, which is higher by 79.2 percent than the value of 14,164.53 reached on Oct 9, 2007 and higher by 78.8 percent than the value of 14,198.10 reached on Oct 11, 2007. Values of risk financial assets had been approaching or exceeding historical highs before effects on markets of the COVID-19 event.

Perhaps one of the most critical statements on policy is the answer to a question of Peter Barnes by Chair Janet Yellen at the press conference following the meeting on Jun 18, 2014 (page 19 at http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20140618.pdf):

So I don't have a sense--the committee doesn't try to gauge what is the right level of equity prices. But we do certainly monitor a number of different metrics that give us a feeling for where valuations are relative to things like earnings or dividends, and look at where these metrics stand in comparison with previous history to get a sense of whether or not we're moving to valuation levels that are outside of historical norms, and I still don't see that. I still don't see that for equity prices broadly” (emphasis added).

In a speech at the IMF on Jul 2, 2014, Chair Yellen analyzed the link between monetary policy and financial risks (http://www.federalreserve.gov/newsevents/speech/yellen20140702a.htm):

“Monetary policy has powerful effects on risk taking. Indeed, the accommodative policy stance of recent years has supported the recovery, in part, by providing increased incentives for households and businesses to take on the risk of potentially productive investments. But such risk-taking can go too far, thereby contributing to fragility in the financial system. This possibility does not obviate the need for monetary policy to focus primarily on price stability and full employment--the costs to society in terms of deviations from price stability and full employment that would arise would likely be significant. In the private sector, key vulnerabilities included high levels of leverage, excessive dependence on unstable short-term funding, weak underwriting of loans, deficiencies in risk measurement and risk management, and the use of exotic financial instruments that redistributed risk in nontransparent ways.”

Yellen (2014Jul14) warned again at the Committee on Banking, Housing and Urban Affairs on Jul 15, 2014:

“The Committee recognizes that low interest rates may provide incentives for some investors to “reach for yield,” and those actions could increase vulnerabilities in the financial system to adverse events. While prices of real estate, equities, and corporate bonds have risen appreciably and valuation metrics have increased, they remain generally in line with historical norms. In some sectors, such as lower-rated corporate debt, valuations appear stretched and issuance has been brisk. Accordingly, we are closely monitoring developments in the leveraged loan market and are working to enhance the effectiveness of our supervisory guidance. More broadly, the financial sector has continued to become more resilient, as banks have continued to boost their capital and liquidity positions, and growth in wholesale short-term funding in financial markets has been modest” (emphasis added).

Greenspan (1996) made similar warnings:

“Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy. But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy” (emphasis added).

Bernanke (2010WP) and Yellen (2011AS) reveal the emphasis of monetary policy on the impact of the rise of stock market valuations in stimulating consumption by wealth effects on household confidence. What is the success in evaluating deviations of valuations of risk financial assets from “historical norms”? What are the consequences on economic activity and employment of deviations of valuations of risk financial assets from those “historical norms”? What are the policy tools and their effectiveness in returning valuations of risk financial assets to their “historical norms”?

The key policy consisted in maintaining fed funds rate between 0 and ¼ percent. An increase in fed funds rates could cause flight out of risk financial markets worldwide. There is no exit from this policy without major financial market repercussions. There are high costs and risks of this policy because indefinite financial repression induces carry trades with high leverage, risks and illiquidity.

The Communiqué of the Istanbul meeting of G20 Finance Ministers and Central Bank Governors on February 10, 2015, sanctions the need of unconventional monetary policy with warning on collateral effects (http://www.g20.utoronto.ca/2015/150210-finance.html):

“We agree that consistent with central banks' mandates, current economic conditions require accommodative monetary policies in some economies. In this regard, we welcome that central banks take appropriate monetary policy action. The recent policy decision by the ECB aims at fulfilling its price stability mandate, and will further support the recovery in the euro area. We also note that some advanced economies with stronger growth prospects are moving closer to conditions that would allow for policy normalization. In an environment of diverging monetary policy settings and rising financial market volatility, policy settings should be carefully calibrated and clearly communicated to minimize negative spillovers.”

Professor Raguram G Rajan, former governor of the Reserve Bank of India, which is India’s central bank, warned about risks in high valuations of asset prices in an interview with Christopher Jeffery of Central Banking Journal on Aug 6, 2014 (http://www.centralbanking.com/central-banking-journal/interview/2358995/raghuram-rajan-on-the-dangers-of-asset-prices-policy-spillovers-and-finance-in-india). Professor Rajan demystifies in the interview “competitive easing” by major central banks as equivalent to competitive devaluation. Rajan (2005) anticipated the risks of the world financial crisis. Professor John B. Taylor (2016Dec 7, 2016Dec20), in Testimony to the Subcommittee on Monetary Policy and Trade Committee on Financial Services, on Dec 7, 2016, analyzes the adverse effects of unconventional monetary policy:

“My research and that of others over the years shows that these policies were not effective, and may have been counterproductive. Economic growth was consistently below the Fed’s forecasts with the policies, and was much weaker than in earlier U.S. recoveries from deep recessions. Job growth has been insufficient to raise the percentage of the population that is working above pre-recession levels. There is a growing consensus that the extra low interest rates and unconventional monetary policy have reached diminishing or negative returns. Many have argued that these policies widen the income distribution, adversely affect savers, and increase the volatility of the dollar exchange rate. Experienced market participants have expressed concerns about bubbles, imbalances, and distortions caused by the policies. The unconventional policies have also raised public policy concerns about the Fed being transformed into a multipurpose institution, intervening in particular sectors and allocating credit, areas where Congress may have a role, but not a limited-purpose independent agency of government.”

Professor John B. Taylor (2014Jul15, 2014Jun26) building on advanced research (Taylor 2007, 2008Nov, 2009, 2012FP, 2012Mar27, 2012Mar28, 2012JMCB, 2015, 2012 Oct 25; 2013Oct28, 2014 Jan01, 2014Jan3, 2014Jun26, 2014Jul15, 2015, 2016Dec7, 2016Dec20 2018Nov19 http://www.johnbtaylor.com/) finds that a monetary policy rule would function best in promoting an environment of low inflation and strong economic growth with stability of financial markets. There is strong case for using rules instead of discretionary authorities in monetary policy (http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html and earlier http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html).

The key policy is maintaining fed funds rate between 2 and 2¼ percent. Accelerated increase in fed funds rates could cause flight out of risk financial markets worldwide. There is no exit from this policy without major financial market repercussions. There are high costs and risks of this policy because indefinite financial repression induces carry trades with high leverage, risks and illiquidity.

The FOMC provides guidelines on the process of normalization of monetary policy at the meeting on Dec 16, 2015 (http://www.federalreserve.gov/newsevents/press/monetary/20151216a1.htm):

“The Federal Reserve has made the following decisions to implement the monetary policy stance announced by the Federal Open Market Committee in its statement on December 16, 2015:

The Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on required and excess reserve balances to 0.50 percent, effective December 17, 2015.
As part of its policy decision, the Federal Open Market Committee voted to authorize and direct the Open Market Desk at the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive:¹

"Effective December 17, 2015, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1/4 to 1/2 percent, including: (1) overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 0.25 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day; and (2) term reverse repurchase operations to the extent approved in the resolution on term RRP operations approved by the Committee at its March 17-18, 2015, meeting.

The Committee directs the Desk to continue rolling over maturing Treasury securities at auction and to continue reinvesting principal payments on all agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions."

More information regarding open market operations may be found on the Federal Reserve Bank of New York's website.

In a related action, the Board of Governors of the Federal Reserve System voted unanimously to approve a 1/4 percentage point increase in the discount rate (the primary credit rate) to 1.00 percent, effective December 17, 2015. In taking this action, the Board approved requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Kansas City, Dallas, and San Francisco.

This information will be updated as appropriate to reflect decisions of the Federal Open Market Committee or the Board of Governors regarding details of the Federal Reserve's operational tools and approach used to implement monetary policy.”

In the Semiannual Monetary Policy Report to Congress on Feb 24, 2015, Chair Yellen analyzes the timing of interest rate increases (http://www.federalreserve.gov/newsevents/testimony/yellen20150224a.htm):

“The FOMC's assessment that it can be patient in beginning to normalize policy means that the Committee considers it unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of FOMC meetings. If economic conditions continue to improve, as the Committee anticipates, the Committee will at some point begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis. Before then, the Committee will change its forward guidance. However, it is important to emphasize that a modification of the forward guidance should not be read as indicating that the Committee will necessarily increase the target range in a couple of meetings. Instead the modification should be understood as reflecting the Committee's judgment that conditions have improved to the point where it will soon be the case that a change in the target range could be warranted at any meeting. Provided that labor market conditions continue to improve and further improvement is expected, the Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when, on the basis of incoming data, the Committee is reasonably confident that inflation will move back over the medium term toward our 2 percent objective.”

In testimony on the Semiannual Monetary Policy Report to the Congress before the Committee on Financial Services, US House of Representatives, on Feb 11, 2014, Chair Janet Yellen states (http://www.federalreserve.gov/newsevents/testimony/yellen20140211a.htm):

“Turning to monetary policy, let me emphasize that I expect a great deal of continuity in the FOMC's approach to monetary policy. I served on the Committee as we formulated our current policy strategy and I strongly support that strategy, which is designed to fulfill the Federal Reserve's statutory mandate of maximum employment and price stability. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. That said, purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on its outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases. In December of last year and again this January, the Committee said that its current expectation--based on its assessment of a broad range of measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments--is that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the 2 percent goal. I am committed to achieving both parts of our dual mandate: helping the economy return to full employment and returning inflation to 2 percent while ensuring that it does not run persistently above or below that level (emphasis added).”

At the confirmation hearing on nomination for Chair of the Board of Governors of the Federal Reserve System, Vice Chair Yellen (2013Nov14 http://www.federalreserve.gov/newsevents/testimony/yellen20131114a.htm), states needs and intentions of policy:

“We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession. Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been running below the Federal Reserve's goal of 2 percent and is expected to continue to do so for some time.

For these reasons, the Federal Reserve is using its monetary policy tools to promote a more robust recovery. A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases. I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”

In testimony before the Committee on the Budget of the US Senate on May 8, 2004, Chair Yellen provides analysis of the current economic situation and outlook (http://www.federalreserve.gov/newsevents/testimony/yellen20140507a.htm):

“The economy has continued to recover from the steep recession of 2008 and 2009. Real gross domestic product (GDP) growth stepped up to an average annual rate of about 3-1/4 percent over the second half of last year, a faster pace than in the first half and during the preceding two years. Although real GDP growth is currently estimated to have paused in the first quarter of this year, I see that pause as mostly reflecting transitory factors, including the effects of the unusually cold and snowy winter weather. With the harsh winter behind us, many recent indicators suggest that a rebound in spending and production is already under way, putting the overall economy on track for solid growth in the current quarter. One cautionary note, though, is that readings on housing activity--a sector that has been recovering since 2011--have remained disappointing so far this year and will bear watching.

Conditions in the labor market have continued to improve. The unemployment rate was 6.3 percent in April, about 1-1/4 percentage points below where it was a year ago. Moreover, gains in payroll employment averaged nearly 200,000 jobs per month over the past year. During the economic recovery so far, payroll employment has increased by about 8-1/2 million jobs since its low point, and the unemployment rate has declined about 3-3/4 percentage points since its peak.

While conditions in the labor market have improved appreciably, they are still far from satisfactory. Even with recent declines in the unemployment rate, it continues to be elevated. Moreover, both the share of the labor force that has been unemployed for more than six months and the number of individuals who work part time but would prefer a full-time job are at historically high levels. In addition, most measures of labor compensation have been rising slowly--another signal that a substantial amount of slack remains in the labor market.

Inflation has been quite low even as the economy has continued to expand. Some of the factors contributing to the softness in inflation over the past year, such as the declines seen in non-oil import prices, will probably be transitory. Importantly, measures of longer-run inflation expectations have remained stable. That said, the Federal Open Market Committee (FOMC) recognizes that inflation persistently below 2 percent--the rate that the Committee judges to be most consistent with its dual mandate--could pose risks to economic performance, and we are monitoring inflation developments closely.

Looking ahead, I expect that economic activity will expand at a somewhat faster pace this year than it did last year, that the unemployment rate will continue to decline gradually, and that inflation will begin to move up toward 2 percent. A faster rate of economic growth this year should be supported by reduced restraint from changes in fiscal policy, gains in household net worth from increases in home prices and equity values, a firming in foreign economic growth, and further improvements in household and business confidence as the economy continues to strengthen. Moreover, U.S. financial conditions remain supportive of growth in economic activity and employment.”

The President of the ECB Mario Draghi stated in a speech at the conference “The ECB and its Watchers XX,” in Frankfurt am Main, on Mar 27, 2019 (https://www.ecb.europa.eu/press/key/date/2019/html/ecb.sp190327~2b454e4326.en.html): “We will continue monitoring how banks can maintain healthy earning conditions while net interest margins are compressed. And, if necessary, we need to reflect on possible measures that can preserve the favourable implications of negative rates for the economy, while mitigating the side effects, if any. That said, low bank profitability is not an inevitable consequence of negative rates. ECB analysis finds that the best-performing banks in the euro area in terms of return on equity between 2009 and 2017 share three key features: they have been able to significantly reduce their cost-to-income ratios; they have embarked on large-scale investments in information technology; and they have been able to diversify their revenue sources in a low interest rate environment.” At its meeting on September 12, 2019, the Governing Council of the ECB (European Central Bank), decided to (https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190912~08de50b4d2.en.html): (1) decrease the deposit facility by 10 basis points to minus 0.50 percent while maintaining at 0.00 the main refinancing operations rate and at 0.25 percent the marginal lending facility rate; (2) restart net purchases of securities at the monthly rate of €20 billion beginning on Nov 1, 2019; (3) reinvest principal payments from maturing securities; (4) adapt long-term refinancing operations to maintain “favorable bank lending conditions;” and (5) exempt part of the “negative deposit facility rate” on bank excess liquidity. Tom Fairless and Brian Blackstone, “ECB’s Draghi hints at drawbacks of negative rates,” Wall Street Journal, Mar 27, 2019, argue that while negative interest rates may encourage spending and investing they create adverse effects such as banks paying for reserves and holders of government bonds paying to hold them such as the current negative yields of ten-year bonds of Germany. Extremely low interest rates also encouraged artificial booms in real estate, which was one of the causes of the financial crisis and global recession (Taylor 2018Nov20, 3-4). Unconventional monetary policy of extremely low interest rates and bloated central bank balance sheet is almost impossible to reverse without causing financial crisis and recession.

In his classic restatement of the Keynesian demand function in terms of “liquidity preference as behavior toward risk,” James Tobin (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1981/tobin-bio.html) identifies the risks of low interest rates in terms of portfolio allocation (Tobin 1958, 86):

“The assumption that investors expect on balance no change in the rate of interest has been adopted for the theoretical reasons explained in section 2.6 rather than for reasons of realism. Clearly investors do form expectations of changes in interest rates and differ from each other in their expectations. For the purposes of dynamic theory and of analysis of specific market situations, the theories of sections 2 and 3 are complementary rather than competitive. The formal apparatus of section 3 will serve just as well for a non-zero expected capital gain or loss as for a zero expected value of g. Stickiness of interest rate expectations would mean that the expected value of g is a function of the rate of interest r, going down when r goes down and rising when r goes up. In addition to the rotation of the opportunity locus due to a change in r itself, there would be a further rotation in the same direction due to the accompanying change in the expected capital gain or loss. At low interest rates expectation of capital loss may push the opportunity locus into the negative quadrant, so that the optimal position is clearly no consols, all cash. At the other extreme, expectation of capital gain at high interest rates would increase sharply the slope of the opportunity locus and the frequency of no cash, all consols positions, like that of Figure 3.3. The stickier the investor's expectations, the more sensitive his demand for cash will be to changes in the rate of interest (emphasis added).”

Tobin (1969) provides more elegant, complete analysis of portfolio allocation in a general equilibrium model. The major point is equally clear in a portfolio consisting of only cash balances and a perpetuity or consol. Let g be the capital gain, r the rate of interest on the consol and r^e the expected rate of interest. The rates are expressed as proportions. The price of the consol is the inverse of the interest rate, (1+r^e). Thus, g = [(r/r^e) – 1]. The critical analysis of Tobin is that at extremely low interest rates there is only expectation of interest rate increases, that is, dr^e>0, such that there is expectation of capital losses on the consol, dg<0. Investors move into positions combining only cash and no consols. Valuations of risk financial assets would collapse in reversal of long positions in carry trades with short exposures in a flight to cash. There is no exit from a central bank created liquidity trap without risks of financial crash and another global recession. The net worth of the economy depends on interest rates. In theory, “income is generally defined as the amount a consumer unit could consume (or believe that it could) while maintaining its wealth intact” (Friedman 1957, 10). Income, Y, is a flow that is obtained by applying a rate of return, r, to a stock of wealth, W, or Y = rW (Ibid). According to a subsequent statement: “The basic idea is simply that individuals live for many years and that therefore the appropriate constraint for consumption is the long-run expected yield from wealth r*W. This yield was named permanent income: Y* = r*W” (Darby 1974, 229), where * denotes permanent. The simplified relation of income and wealth can be restated as:

W = Y/r (10

Equation (1) shows that as r goes to zero, r→0, W grows without bound, W→∞. Unconventional monetary policy lowers interest rates to increase the present value of cash flows derived from projects of firms, creating the impression of long-term increase in net worth. An attempt to reverse unconventional monetary policy necessarily causes increases in interest rates, creating the opposite perception of declining net worth. As r→∞, W = Y/r →0. There is no exit from unconventional monetary policy without increasing interest rates with resulting pain of financial crisis and adverse effects on production, investment and employment.

In delivering the biannual report on monetary policy (Board of Governors 2013Jul17), Chairman Bernanke (2013Jul17) advised Congress that:

“Instead, we are providing additional policy accommodation through two distinct yet complementary policy tools. The first tool is expanding the Federal Reserve's portfolio of longer-term Treasury securities and agency mortgage-backed securities (MBS); we are currently purchasing $40 billion per month in agency MBS and $45 billion per month in Treasuries. We are using asset purchases and the resulting expansion of the Federal Reserve's balance sheet primarily to increase the near-term momentum of the economy, with the specific goal of achieving a substantial improvement in the outlook for the labor market in a context of price stability. We have made some progress toward this goal, and, with inflation subdued, we intend to continue our purchases until a substantial improvement in the labor market outlook has been realized. We are relying on near-zero short-term interest rates, together with our forward guidance that rates will continue to be exceptionally low--our second tool--to help maintain a high degree of monetary accommodation for an extended period after asset purchases end, even as the economic recovery strengthens and unemployment declines toward more-normal levels. In appropriate combination, these two tools can provide the high level of policy accommodation needed to promote a stronger economic recovery with price stability.

The Committee's decisions regarding the asset purchase program (and the overall stance of monetary policy) depend on our assessment of the economic outlook and of the cumulative progress toward our objectives. Of course, economic forecasts must be revised when new information arrives and are thus necessarily provisional.”

Friedman (1953) argues there are three lags in effects of monetary policy: (1) between the need for action and recognition of the need; (2) the recognition of the need and taking of actions; and (3) taking of action and actual effects. Friedman (1953) finds that the combination of these lags with insufficient knowledge of the current and future behavior of the economy causes discretionary economic policy to increase instability of the economy or standard deviations of real income σ_y and prices σ_p. Policy attempts to circumvent the lags by policy impulses based on forecasts. We are all naïve about forecasting. Data are available with lags and revised to maintain high standards of estimation. Policy simulation models estimate economic relations with structures prevailing before simulations of policy impulses such that parameters change as discovered by Lucas (1977). Economic agents adjust their behavior in ways that cause opposite results from those intended by optimal control policy as discovered by Kydland and Prescott (1977). Advance guidance attempts to circumvent expectations by economic agents that could reverse policy impulses but is of dubious effectiveness. There is strong case for using rules instead of discretionary authorities in monetary policy (http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html and earlier http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html).

The key policy is maintaining the fed funds rate between 1¾ and 2 percent with gradual increases subsequently if needed. Accelerated increase in fed funds rates could cause flight out of risk financial markets worldwide. There is no exit from this policy without major financial market repercussions. Indefinite financial repression induces carry trades with high leverage, risks and illiquidity.

Unconventional monetary policy drives wide swings in allocations of positions into risk financial assets that generate instability instead of intended pursuit of prosperity without inflation. There is insufficient knowledge and imperfect tools to maintain the gap of actual relative to potential output constantly at zero while restraining inflation in an open interval of (1.99, 2.0). Symmetric targets appear to have been abandoned in favor of a self-imposed single jobs mandate of easing monetary policy even with the economy growing at or close to potential output that is actually a target of growth forecast. The impact on the overall economy and the financial system of errors of policy are magnified by large-scale policy doses of trillions of dollars of quantitative easing and zero interest rates. The US economy has been experiencing financial repression as a result of negative real rates of interest during nearly a decade and programmed in monetary policy statements until 2015 or, for practical purposes, forever. The essential calculus of risk/return in capital budgeting and financial allocations has been distorted. If economic perspectives are doomed until 2015 such as to warrant zero interest rates and open-ended bond-buying by “printing” digital bank reserves (http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html; see Shultz et al 2012), rational investors and consumers will not invest and consume until just before interest rates are likely to increase. Monetary policy statements on intentions of zero interest rates for another three years or now virtually forever discourage investment and consumption or aggregate demand that can increase economic growth and generate more hiring and opportunities to increase wages and salaries. The doom scenario used to justify monetary policy accentuates adverse expectations on discounted future cash flows of potential economic projects that can revive the economy and create jobs. If it were possible to project the future with the central tendency of the monetary policy scenario and monetary policy tools do exist to reverse this adversity, why the tools have not worked before and even prevented the financial crisis? If there is such thing as “monetary policy science”, why it has such poor record and current inability to reverse production and employment adversity? There is no excuse of arguing that additional fiscal measures are needed because they were deployed simultaneously with similar ineffectiveness. Jon Hilsenrath, writing on “New view into Fed’s response to crisis,” on Feb 21, 2014, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303775504579396803024281322?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes 1865 pages of transcripts of eight formal and six emergency policy meetings at the Fed in 2008 (http://www.federalreserve.gov/monetarypolicy/fomchistorical2008.htm). If there were an infallible science of central banking, models and forecasts would provide accurate information to policymakers on the future course of the economy in advance. Such forewarning is essential to central bank science because of the long lag between the actual impulse of monetary policy and the actual full effects on income and prices many months and even years ahead (Romer and Romer 2004, Friedman 1961, 1953, Culbertson 1960, 1961, Batini and Nelson 2002). The transcripts of the Fed meetings in 2008 (http://www.federalreserve.gov/monetarypolicy/fomchistorical2008.htm) analyzed by Jon Hilsenrath demonstrate that Fed policymakers frequently did not understand the current state of the US economy in 2008 and much less the direction of income and prices. The conclusion of Friedman (1953) is that monetary impulses increase financial and economic instability because of lags in anticipating needs of policy, taking policy decisions and effects of decisions. This is a fortiori true when untested unconventional monetary policy in gargantuan doses shocks the economy and financial markets.

In remarkable anticipation in 2005, Professor Raghuram G. Rajan (2005) warned of low liquidity and high risks of central bank policy rates approaching the zero bound (Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 218-9). Professor Rajan excelled in a distinguished career as an academic economist in finance and was chief economist of the International Monetary Fund (IMF). Shefali Anand and Jon Hilsenrath, writing on Oct 13, 2013, on “India’s central banker lobbies Fed,” published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702304330904579133530766149484?KEYWORDS=Rajan), interviewed Raghuram G Rajan, who is the current Governor of the Reserve Bank of India, which is India’s central bank (http://www.rbi.org.in/scripts/AboutusDisplay.aspx). In this interview, Rajan argues that central banks should avoid unintended consequences on emerging market economies of inflows and outflows of capital triggered by monetary policy. Portfolio reallocations induced by combination of zero interest rates and risk events stimulate carry trades that generate wide swings in world capital flows. Professor Rajan, in an interview with Kartik Goyal of Bloomberg (http://www.bloomberg.com/news/2014-01-30/rajan-warns-of-global-policy-breakdown-as-emerging-markets-slide.html), warns of breakdown of global policy coordination. Professor Raguram G Rajan, former governor of the Reserve Bank of India, which is India’s central bank, warned about risks in high valuations of asset prices in an interview with Christopher Jeffery of Central Banking Journal on Aug 6, 2014 (http://www.centralbanking.com/central-banking-journal/interview/2358995/raghuram-rajan-on-the-dangers-of-asset-prices-policy-spillovers-and-finance-in-india). Professor Rajan demystifies in the interview “competitive easing” by major central banks as equivalent to competitive devaluation.

The Swiss National Bank (SNB) announced on Jan 15, 2015, the termination of its peg of the exchange rate of the Swiss franc to the euro (http://www.snb.ch/en/mmr/speeches/id/ref_20150115_tjn/source/ref_20150115_tjn.en.pdf):

“The Swiss National Bank (SNB) has decided to discontinue the minimum exchange rate of

CHF 1.20 per euro with immediate effect and to cease foreign currency purchases associated with enforcing it.”

The SNB also lowered interest rates to nominal negative percentages (http://www.snb.ch/en/mmr/speeches/id/ref_20150115_tjn/source/ref_20150115_tjn.en.pdf):

“At the same time as discontinuing the minimum exchange rate, the SNB will be lowering the interest rate for balances held on sight deposit accounts to –0.75% from 22 January. The exemption thresholds remain unchanged. Further lowering the interest rate makes Swiss-franc investments considerably less attractive and will mitigate the effects of the decision to discontinue the minimum exchange rate. The target range for the three-month Libor is being lowered by 0.5 percentage points to between –1.25% and –0.25%.”

The Swiss franc rate relative to the euro (CHF/EUR) appreciated 18.7 percent on Jan 15, 2015. The Swiss franc rate relative to the dollar (CHF/USD) appreciated 17.7 percent. Central banks are taking measures in anticipation of the quantitative easing by the European Central Bank.

On Jan 22, 2015, the European Central Bank (ECB) decided to implement an “expanded asset purchase program” with combined asset purchases of €60 billion per month “until at least Sep 2016 (http://www.ecb.europa.eu/press/pr/date/2015/html/pr150122_1.en.html). The objective of the program is that (http://www.ecb.europa.eu/press/pr/date/2015/html/pr150122_1.en.html):

“Asset purchases provide monetary stimulus to the economy in a context where key ECB interest rates are at their lower bound. They further ease monetary and financial conditions, making access to finance cheaper for firms and households. This tends to support investment and consumption, and ultimately contributes to a return of inflation rates towards 2%.”

The President of the ECB, Mario Draghi, explains the coordination of asset purchases with NCBs (National Central Banks) of the euro area and risk sharing (http://www.ecb.europa.eu/press/pressconf/2015/html/is150122.en.html):

“In March 2015 the Eurosystem will start to purchase euro-denominated investment-grade securities issued by euro area governments and agencies and European institutions in the secondary market. The purchases of securities issued by euro area governments and agencies will be based on the Eurosystem NCBs’ shares in the ECB’s capital key. Some additional eligibility criteria will be applied in the case of countries under an EU/IMF adjustment programme. As regards the additional asset purchases, the Governing Council retains control over all the design features of the programme and the ECB will coordinate the purchases, thereby safeguarding the singleness of the Eurosystem’s monetary policy. The Eurosystem will make use of decentralised implementation to mobilise its resources. With regard to the sharing of hypothetical losses, the Governing Council decided that purchases of securities of European institutions (which will be 12% of the additional asset purchases, and which will be purchased by NCBs) will be subject to loss sharing. The rest of the NCBs’ additional asset purchases will not be subject to loss sharing. The ECB will hold 8% of the additional asset purchases. This implies that 20% of the additional asset purchases will be subject to a regime of risk sharing.”

The President of the ECB, Mario Draghi, rejected the possibility of seigniorage in the new asset purchase program, or central bank financing of fiscal expansion (http://www.ecb.europa.eu/press/pressconf/2015/html/is150122.en.html):

“As I just said, it would be a big mistake if countries were to consider that the presence of this programme might be an incentive to fiscal expansion. They would undermine the confidence, so it’s not directed to monetary financing at all. Actually, it’s been designed as to avoid any monetary financing.”

The President of the ECB, Mario Draghi, does not find effects of monetary policy in inflating asset prices (http://www.ecb.europa.eu/press/pressconf/2015/html/is150122.en.html):

“On the first question, we monitor closely any potential instance of risk to financial stability. So we're very alert to that risk. So far we don't see bubbles. There may be some local episodes of certain specific markets where prices are going up fast. But to have a bubble, besides having that, one should also identify, detect an increase, dramatic increase in leverage or in bank credit, and we don't see that now. However, we, as I said, we are alert. If bubbles are of a local nature, they should be addressed by local instruments, namely macro-prudential instruments rather than by monetary policy.”

The DAX index of German equities increased 1.3 percent on Jan 22, 2015 and 2.1 percent on Jan 23, 2015. The euro depreciated from EUR 1.1611/USD (EUR 0.8613/USD) on Wed Jan 21, 2015, to EUR 1.1206/USD (EUR 0.8924/USD) on Fri Jan 23, 2015, or 3.6 percent. Yellen (2011AS, 6) admits that Fed monetary policy results in dollar devaluation with the objective of increasing net exports, which was the policy that Joan Robinson (1947) labeled as “beggar-my-neighbor” remedies for unemployment. Risk aversion erodes devaluation of the dollar.

Dan Strumpf and Pedro Nicolaci da Costa, writing on “Fed’s Yellen: Stock Valuations ‘Generally are Quite High,’” on May 6, 2015, published in the Wall Street Journal (http://www.wsj.com/articles/feds-yellen-cites-progress-on-bank-regulation-1430918155?tesla=y ), quote Chair Yellen at open conversation with Christine Lagarde, Managing Director of the IMF, finding “equity-market valuations” as “quite high” with “potential dangers” in bond valuations. The DJIA fell 0.5 percent on May 6, 2015, after the comments and then increased 0.5 percent on May 7, 2015 and 1.5 percent on May 8, 2015.

Fri May 1

Mon 4

Tue 5

Wed 6

Thu 7

Fri 8

DJIA

18024.06

-0.3%

1.0%

18070.40

0.3%

17928.20

-0.5%

-0.8%

17841.98

-1.0%

-0.5%

17924.06

-0.6%

0.5%

18191.11

0.9%

1.5%

There are two approaches in theory considered by Bordo (2012Nov20) and Bordo and Lane (2013). The first approach is in the classical works of Milton Friedman and Anna Jacobson Schwartz (1963a, 1987) and Karl Brunner and Allan H. Meltzer (1973). There is a similar approach in Tobin (1969). Friedman and Schwartz (1963a, 66) trace the effects of expansionary monetary policy into increasing initially financial asset prices: “It seems plausible that both nonbank and bank holders of redundant balances will turn first to securities comparable to those they have sold, say, fixed-interest coupon, low-risk obligations. But as they seek to purchase these they will tend to bid up the prices of those issues. Hence they, and also other holders not involved in the initial central bank open-market transactions, will look farther afield: the banks, to their loans; the nonbank holders, to other categories of securities-higher risk fixed-coupon obligations, equities, real property, and so forth.”

The second approach is by the Austrian School arguing that increases in asset prices can become bubbles if monetary policy allows their financing with bank credit. Professor Michael D. Bordo provides clear thought and empirical evidence on the role of “expansionary monetary policy” in inflating asset prices (Bordo2012Nov20, Bordo and Lane 2013). Bordo and Lane (2013) provide revealing narrative of historical episodes of expansionary monetary policy. Bordo and Lane (2013) conclude that policies of depressing interest rates below the target rate or growth of money above the target influences higher asset prices, using a panel of 18 OECD countries from 1920 to 2011. Bordo (2012Nov20) concludes: “that expansionary money is a significant trigger” and “central banks should follow stable monetary policies…based on well understood and credible monetary rules.” Taylor (2007, 2009) explains the housing boom and financial crisis in terms of expansionary monetary policy. Professor Martin Feldstein (2016), at Harvard University, writing on “A Federal Reserve oblivious to its effects on financial markets,” on Jan 13, 2016, published in the Wall Street Journal (http://www.wsj.com/articles/a-federal-reserve-oblivious-to-its-effect-on-financial-markets-1452729166), analyzes how unconventional monetary policy drove values of risk financial assets to high levels. Quantitative easing and zero interest rates distorted calculation of risks with resulting vulnerabilities in financial markets.

Another hurdle of exit from zero interest rates is “competitive easing” that Professor Raghuram Rajan, governor of the Reserve Bank of India, characterizes as disguised “competitive devaluation” (http://www.centralbanking.com/central-banking-journal/interview/2358995/raghuram-rajan-on-the-dangers-of-asset-prices-policy-spillovers-and-finance-in-india). The fed has been considering increasing interest rates. The European Central Bank (ECB) announced, on Mar 5, 2015, the beginning on Mar 9, 2015 of its quantitative easing program denominated as Public Sector Purchase Program (PSPP), consisting of “combined monthly purchases of EUR 60 bn [billion] in public and private sector securities” (http://www.ecb.europa.eu/mopo/liq/html/pspp.en.html). Expectation of increasing interest rates in the US together with euro rates close to zero or negative cause revaluation of the dollar (or devaluation of the euro and of most currencies worldwide). US corporations suffer currency translation losses of their foreign transactions and investments (http://www.fasb.org/jsp/FASB/Pronouncement_C/SummaryPage&cid=900000010318) while the US becomes less competitive in world trade (Pelaez and Pelaez, Globalization and the State, Vol. I (2008a), Government Intervention in Globalization (2008c)). The DJIA fell 1.5 percent on Mar 6, 2015 and the dollar revalued 2.2 percent from Mar 5 to Mar 6, 2015. The euro has devalued 43.2 percent relative to the dollar from the high on Jul 15, 2008 to May 29, 2020.

Fri 27 Feb

Mon 3/2

Tue 3/3

Wed 3/4

Thu 3/5

Fri 3/6

USD/ EUR

1.1197

1.6%

0.0%

1.1185

0.1%

1.1176

0.2%

0.1%

1.1081

1.0%

0.9%

1.1030

1.5%

0.5%

1.0843

3.2%

1.7%

Chair Yellen explained the removal of the word “patience” from the advanced guidance at the press conference following the FOMC meeting on Mar 18, 2015 (http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20150318.pdf):

Exchange rate volatility is increasing in response of “impatience” in financial markets with monetary policy guidance and measures:

Fri Mar 6

Mon 9

Tue 10

Wed 11

Thu 12

Fri 13

USD/ EUR

1.0843

3.2%

1.7%

1.0853

-0.1%

1.0700

1.3%

1.4%

1.0548

2.7%

1.4%

1.0637

1.9%

-0.8%

1.0497

3.2%

1.3%

Fri Mar 13

Mon 16

Tue 17

Wed 18

Thu 19

Fri 20

USD/ EUR

1.0497

3.2%

1.3%

1.0570

-0.7%

1.0598

-1.0%

-0.3%

1.0864

-3.5%

-2.5%

1.0661

-1.6%

1.9%

1.0821

-3.1%

-1.5%

Fri Apr 24

Mon 27

Tue 28

Wed 29

Thu 30

May Fri 1

USD/ EUR

1.0874

-0.6%

-0.4%

1.0891

-0.2%

1.0983

-1.0%

-0.8%

1.1130

-2.4%

-1.3%

1.1223

-3.2%

-0.8%

1.1199

-3.0%

0.2%

In a speech at Brown University on May 22, 2015, Chair Yellen stated (http://www.federalreserve.gov/newsevents/speech/yellen20150522a.htm):

“For this reason, if the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy. To support taking this step, however, I will need to see continued improvement in labor market conditions, and I will need to be reasonably confident that inflation will move back to 2 percent over the medium term. After we begin raising the federal funds rate, I anticipate that the pace of normalization is likely to be gradual. The various headwinds that are still restraining the economy, as I said, will likely take some time to fully abate, and the pace of that improvement is highly uncertain.”

The US dollar appreciated 3.8 percent relative to the euro in the week of May 22, 2015:

Fri May 15

Mon 18

Tue 19

Wed 20

Thu 21

Fri 22

USD/ EUR

1.1449

-2.2%

-0.3%

1.1317

1.2%

1.1150

2.6%

1.5%

1.1096

3.1%

0.5%

1.1113

2.9%

-0.2%

1.1015

3.8%

0.9%

The Managing Director of the International Monetary Fund (IMF), Christine Lagarde, warned on Jun 4, 2015, that: (http://blog-imfdirect.imf.org/2015/06/04/u-s-economy-returning-to-growth-but-pockets-of-vulnerability/):

“The Fed’s first rate increase in almost 9 years is being carefully prepared and telegraphed. Nevertheless, regardless of the timing, higher US policy rates could still result in significant market volatility with financial stability consequences that go well beyond US borders. I weighing these risks, we think there is a case for waiting to raise rates until there are more tangible signs of wage or price inflation than are currently evident. Even after the first rate increase, a gradual rise in the federal fund rates will likely be appropriate.”

The President of the European Central Bank (ECB), Mario Draghi, warned on Jun 3, 2015 that (http://www.ecb.europa.eu/press/pressconf/2015/html/is150603.en.html):

“But certainly one lesson is that we should get used to periods of higher volatility. At very low levels of interest rates, asset prices tend to show higher volatility…the Governing Council was unanimous in its assessment that we should look through these developments and maintain a steady monetary policy stance.”

The Chair of the Board of Governors of the Federal Reserve System, Janet L. Yellen, stated on Jul 10, 2015 that (http://www.federalreserve.gov/newsevents/speech/yellen20150710a.htm):

“Based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy. But I want to emphasize that the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step. I currently anticipate that the appropriate pace of normalization will be gradual, and that monetary policy will need to be highly supportive of economic activity for quite some time. The projections of most of my FOMC colleagues indicate that they have similar expectations for the likely path of the federal funds rate. But, again, both the course of the economy and inflation are uncertain. If progress toward our employment and inflation goals is more rapid than expected, it may be appropriate to remove monetary policy accommodation more quickly. However, if progress toward our goals is slower than anticipated, then the Committee may move more slowly in normalizing policy.”

There is essentially the same view in the Testimony of Chair Yellen in delivering the Semiannual Monetary Policy Report to the Congress on Jul 15, 2015 (http://www.federalreserve.gov/newsevents/testimony/yellen20150715a.htm).

At the press conference after the meeting of the FOMC on Sep 17, 2015, Chair Yellen states (http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20150917.pdf 4):

“The outlook abroad appears to have become more uncertain of late, and heightened concerns about growth in China and other emerging market economies have led to notable volatility in financial markets. Developments since our July meeting, including the drop in equity prices, the further appreciation of the dollar, and a widening in risk spreads, have tightened overall financial conditions to some extent. These developments may restrain U.S. economic activity somewhat and are likely to put further downward pressure on inflation in the near term. Given the significant economic and financial interconnections between the United States and the rest of the world, the situation abroad bears close watching.”

Some equity markets fell on Fri Sep 18, 2015:

Fri Sep 11

Mon 14

Tue 15

Wed 16

Thu 17

Fri 18

DJIA

16433.09

2.1%

0.6%

16370.96

-0.4%

16599.85

1.0%

1.4%

16739.95

1.9%

0.8%

16674.74

1.5%

-0.4%

16384.58

-0.3%

-1.7%

Nikkei 225

18264.22

2.7%

-0.2%

17965.70

-1.6%

18026.48

-1.3%

0.3%

18171.60

-0.5%

0.8%

18432.27

0.9%

1.4%

18070.21

-1.1%

-2.0%

DAX

10123.56

0.9%

-0.9%

10131.74

0.1%

10188.13

0.6%

10227.21

1.0%

0.4%

10229.58

1.0%

0.0%

9916.16

-2.0%

-3.1%

Frank H. Knight (1963, 233), in Risk, uncertainty and profit, distinguishes between measurable risk and unmeasurable uncertainty. Chair Yellen, in a lecture on “Inflation dynamics and monetary policy,” on Sep 24, 2015 (http://www.federalreserve.gov/newsevents/speech/yellen20150924a.htm), states that (emphasis added):

· “The economic outlook, of course, is highly uncertain”

· “Considerable uncertainties also surround the outlook for economic activity”

· “Given the highly uncertain nature of the outlook…”

Is there a “science” or even “art” of central banking under this extreme uncertainty in which policy does not generate higher volatility of money, income, prices and values of financial assets?

Lingling Wei, writing on Oct 23, 2015, on China’s central bank moves to spur economic growth,” published in the Wall Street Journal (http://www.wsj.com/articles/chinas-central-bank-cuts-rates-1445601495), analyzes the reduction by the People’s Bank of China (http://www.pbc.gov.cn/ http://www.pbc.gov.cn/english/130437/index.html) of borrowing and lending rates of banks by 50 basis points and reserve requirements of banks by 50 basis points. Paul Vigna, writing on Oct 23, 2015, on “Stocks rally out of correction territory on latest central bank boost,” published in the Wall Street Journal (http://blogs.wsj.com/moneybeat/2015/10/23/stocks-rally-out-of-correction-territory-on-latest-central-bank-boost/), analyzes the rally in financial markets following the statement on Oct 22, 2015, by the President of the European Central Bank (ECB) Mario Draghi of consideration of new quantitative measures in Dec 2015 (https://www.youtube.com/watch?v=0814riKW25k&rel=0) and the reduction of bank lending/deposit rates and reserve requirements of banks by the People’s Bank of China on Oct 23, 2015. The dollar revalued 2.8 percent from Oct 21 to Oct 23, 2015, following the intended easing of the European Central Bank. The DJIA rose 2.8 percent from Oct 21 to Oct 23 and the DAX index of German equities rose 5.4 percent from Oct 21 to Oct 23, 2015.

Fri Oct 16

Mon 19

Tue 20

Wed 21

Thu 22

Fri 23

USD/ EUR

1.1350

0.1%

0.3%

1.1327

0.2%

1.1348

0.0%

-0.2%

1.1340

0.1%

1.1110

2.1%

2.0%

1.1018

2.9%

0.8%

DJIA

17215.97

0.8%

0.4%

17230.54

0.1%

17217.11

0.0%

-0.1%

17168.61

-0.3%

17489.16

1.6%

1.9%

17646.70

2.5%

0.9%

Dow Global

2421.58

0.3%

0.6%

2414.33

-0.3%

2411.03

-0.4%

-0.1%

2411.27

-0.4%

0.0%

2434.79

0.5%

1.0%

2458.13

1.5%

1.0%

DJ Asia Pacific

1402.31

1.1%

0.3%

1398.80

-0.3%

1395.06

-0.5%

-0.3%

1402.68

0.0%

0.5%

1396.03

-0.4%

-0.5%

1415.50

0.9%

1.4%

Nikkei 225

18291.80

-0.8%

1.1%

18131.23

-0.9%

18207.15

-0.5%

0.4%

18554.28

1.4%

1.9%

18435.87

0.8%

-0.6%

18825.30

2.9%

2.1%

Shanghai

3391.35

6.5%

1.6%

3386.70

-0.1%

3425.33

1.0%

1.1%

3320.68

-2.1%

-3.1%

3368.74

-0.7%

1.4%

3412.43

0.6%

1.3%

DAX

10104.43

0.1%

0.4%

10164.31

0.6%

10147.68

0.4%

-0.2%

10238.10

1.3%

0.9%

10491.97

3.8%

2.5%

10794.54

6.8%

2.9%

Ben Leubsdorf, writing on “Fed’s Yellen: December is “Live Possibility” for First Rate Increase,” on Nov 4, 2015, published in the Wall Street Journal (http://www.wsj.com/articles/feds-yellen-december-is-live-possibility-for-first-rate-increase-1446654282) quotes Chair Yellen that a rate increase in “December would be a live possibility.” The remark of Chair Yellen was during a hearing on supervision and regulation before the Committee on Financial Services, US House of Representatives (http://www.federalreserve.gov/newsevents/testimony/yellen20151104a.htm) and a day before the release of the employment situation report for Oct 2015 (Section I). The dollar revalued 2.4 percent during the week. The euro has devalued 43.2 percent relative to the dollar from the high on Jul 15, 2008 to May 29, 2020.

Fri Oct 30

Mon 2

Tue 3

Wed 4

Thu 5

Fri 6

USD/ EUR

1.1007

0.1%

-0.3%

1.1016

-0.1%

1.0965

0.4%

0.5%

1.0867

1.3%

0.9%

1.0884

1.1%

-0.2%

1.0742

2.4%

1.3%

The release on Nov 18, 2015 of the minutes of the FOMC (Federal Open Market Committee) meeting held on Oct 28, 2015 (http://www.federalreserve.gov/monetarypolicy/fomcminutes20151028.htm) states:

“Most participants anticipated that, based on their assessment of the current economic situation and their outlook for economic activity, the labor market, and inflation, these conditions [for interest rate increase] could well be met by the time of the next meeting. Nonetheless, they emphasized that the actual decision would depend on the implications for the medium-term economic outlook of the data received over the upcoming intermeeting period… It was noted that beginning the normalization process relatively soon would make it more likely that the policy trajectory after liftoff could be shallow.”

Markets could have interpreted a symbolic increase in the fed funds rate at the meeting of the FOMC on Dec 15-16, 2015 (http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm) followed by “shallow” increases, explaining the sharp increase in stock market values and appreciation of the dollar after the release of the minutes on Nov 18, 2015:

Fri Nov 13

Mon 16

Tue 17

Wed 18

Thu 19

Fri 20

USD/ EUR

1.0774

-0.3%

0.4%

1.0686

0.8%

1.0644

1.2%

0.4%

1.0660

1.1%

-0.2%

1.0735

0.4%

-0.7%

1.0647

1.2%

0.8%

DJIA

17245.24

-3.7%

-1.2%

17483.01

1.4%

17489.50

1.4%

0.0%

17737.16

2.9%

1.4%

17732.75

2.8%

0.0%

17823.81

3.4%

0.5%

DAX

10708.40

-2.5%

-0.7%

10713.23

0.0%

10971.04

2.5%

2.4%

10959.95

2.3%

-0.1%

11085.44

3.5%

1.1%

11119.83

3.8%

0.3%

In testimony before The Joint Economic Committee of Congress on Dec 3, 2015 (http://www.federalreserve.gov/newsevents/testimony/yellen20151203a.htm), Chair Yellen reiterated that the FOMC (Federal Open Market Committee) “anticipates that even after employment and inflation are near mandate-consistent levels, economic condition may, for some time, warrant keeping the target federal funds rate below the Committee views as normal in the longer run.” Todd Buell and Katy Burne, writing on “Draghi says ECB could step up stimulus efforts if necessary,” on Dec 4, 2015, published in the Wall Street Journal (http://www.wsj.com/articles/draghi-says-ecb-could-step-up-stimulus-efforts-if-necessary-1449252934), analyze that the President of the European Central Bank (ECB), Mario Draghi, reassured financial markets that the ECB will increase stimulus if required to raise inflation the euro area to targets. The USD depreciated 3.1 percent on Thu Dec 3, 2015 after weaker than expected measures by the European Central Bank. DJIA fell 1.4 percent on Dec 3 and increased 2.1 percent on Dec 4. DAX fell 3.6 percent on Dec 3.

Fri Nov 27

Mon 30

Tue 1

Wed 2

Thu 3

Fri 4

USD/ EUR

1.0594

0.5%

0.2%

1.0565

0.3%

1.0634

-0.4%

-0.7%

1.0616

-0.2%

0.2%

1.0941

-3.3%

-3.1%

1.0885

-2.7%

0.5%

DJIA

17798.49

-0.1%

17719.92

-0.4%

17888.35

0.5%

1.0%

17729.68

-0.4%

-0.9%

17477.67

-1.8%

-1.4%

17847.63

0.3%

2.1%

DAX

11293.76

1.6%

-0.2%

11382.23

0.8%

11261.24

-0.3%

-1.1%

11190.02

-0.9%

-0.6%

10789.24

-4.5%

-3.6%

10752.10

-4.8%

-0.3%

At the press conference following the meeting of the FOMC on Dec 16, 2015, Chair Yellen states (http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20151216.pdf page 8):

“And we recognize that monetary policy operates with lags. We would like to be able to move in a prudent, and as we've emphasized, gradual manner. It's been a long time since the Federal Reserve has raised interest rates, and I think it's prudent to be able to watch what the impact is on financial conditions and spending in the economy and moving in a timely fashion enables us to do this.”

The implication of this statement is that the state of the art is not accurate in analyzing the effects of monetary policy on financial markets and economic activity. The US dollar appreciated and equities fluctuated:

Fri Dec 11

Mon 14

Tue 15

Wed 16

Thu 17

Fri 18

USD/ EUR

1.0991

-1.0%

-0.4%

1.0993

0.0%

1.0932

0.5%

0.6%

1.0913

0.7%

0.2%

1.0827

1.5%

0.8%

1.0868

1.1%

-0.4%

DJIA

17265.21

-3.3%

-1.8%

17368.50

0.6%

17524.91

1.5%

0.9%

17749.09

2.8%

1.3%

17495.84

1.3%

-1.4%

17128.55

-0.8%

-2.1%

DAX

10340.06

-3.8%

-2.4%

10139.34

-1.9%

10450.38

-1.1%

3.1%

10469.26

1.2%

0.2%

10738.12

3.8%

2.6%

10608.19

2.6%

-1.2%

On January 29, 2016, the Policy Board of the Bank of Japan introduced a new policy to attain the “price stability target of 2 percent at the earliest possible time” (https://www.boj.or.jp/en/announcements/release_2016/k160129a.pdf). The new framework consists of three dimensions: quantity, quality and interest rate. The interest rate dimension consists of rates paid to current accounts that financial institutions hold at the Bank of Japan of three tiers zero, positive and minus 0.1 percent. The quantitative dimension consists of increasing the monetary base at the annual rate of 80 trillion yen. The qualitative dimension consists of purchases by the Bank of Japan of Japanese government bonds (JGBs), exchange traded funds (ETFs) and Japan real estate investment trusts (J-REITS). The yen devalued sharply relative to the dollar and world equity markets soared after the new policy announced on Jan 29, 2016:

Fri 22

Mon 25

Tue 26

Wed 27

Thu 28

Fri 29

JPY/ USD

118.77

-1.5%

-0.9%

118.30

0.4%

118.42

0.3%

-0.1%

118.68

0.1%

-0.2%

118.82

0.0%

-0.1%

121.13

-2.0%

-1.9%

DJIA

16093.51

0.7%

1.3%

15885.22

-1.3%

16167.23

0.5%

1.8%

15944.46

-0.9%

-1.4%

16069.64

-0.1%

0.8%

16466.30

2.3%

2.5%

Nikkei

16958.53

-1.1%

5.9%

17110.91

0.9%

16708.90

-1.5%

-2.3%

17163.92

1.2%

2.7%

17041.45

0.5%

-0.7%

17518.30

3.3%

2.8%

Shanghai

2916.56

0.5%

1.3

2938.51

0.8%

2749.79

-5.7%

-6.4%

2735.56

-6.2%

-0.5%

2655.66

-8.9%

-2.9%

2737.60

-6.1%

3.1%

DAX

9764.88

2.3%

2.0%

9736.15

-0.3%

9822.75

0.6%

0.9%

9880.82

1.2%

0.6%

9639.59

-1.3%

-2.4%

9798.11

0.3%

1.6%

In testimony on the Semiannual Monetary Policy Report to the Congress on Feb 10-11, 2016, Chair Yellen (http://www.federalreserve.gov/newsevents/testimony/yellen20160210a.htm) states: “U.S. real gross domestic product is estimated to have increased about 1-3/4 percent in 2015. Over the course of the year, subdued foreign growth and the appreciation of the dollar restrained net exports. In the fourth quarter of last year, growth in the gross domestic product is reported to have slowed more sharply, to an annual rate of just 3/4 percent; again, growth was held back by weak net exports as well as by a negative contribution from inventory investment.”

Jon Hilsenrath, writing on “Yellen Says Fed Should Be Prepared to Use Negative Rates if Needed,” on Feb 11, 2016, published in the Wall Street Journal (http://www.wsj.com/articles/yellen-reiterates-concerns-about-risks-to-economy-in-senate-testimony-1455203865), analyzes the statement of Chair Yellen in Congress that the FOMC (Federal Open Market Committee) is considering negative interest rates on bank reserves. The Wall Street Journal provides yields of two and ten-year sovereign bonds with negative interest rates on shorter maturities where central banks pay negative interest rates on excess bank reserves:

Sovereign Yields 2/12/16	Japan	Germany	USA
2 Year	-0.168	-0.498	0.694
10 Year	0.076	0.262	1.744

On Mar 10, 2016, the European Central Bank (ECB) announced (1) reduction of the refinancing rate by 5 basis points to 0.00 percent; decrease the marginal lending rate to 0.25 percent; reduction of the deposit facility rate to 0,40 percent; increase of the monthly purchase of assets to €80 billion; include nonbank corporate bonds in assets eligible for purchases; and new long-term refinancing operations (https://www.ecb.europa.eu/press/pr/date/2016/html/pr160310.en.html). The President of the ECB, Mario Draghi, stated in the press conference (https://www.ecb.europa.eu/press/pressconf/2016/html/is160310.en.html): “How low can we go? Let me say that rates will stay low, very low, for a long period of time, and well past the horizon of our purchases…We don’t anticipate that it will be necessary to reduce rates further. Of course, new facts can change the situation and the outlook.”

The dollar devalued relative to the euro and open stock markets traded lower after the announcement on Mar 10, 2016, but stocks rebounded on Mar 11:

Fri 4

Mon 7

Tue 8

Wed 9

Thu10

Fri 11

USD/ EUR

1.1006

-0.7%

-0.4%

1.1012

-0.1%

1.1013

-0.1%

0.0%

1.0999

0.1%

1.1182

-1.6%

-1.7%

1.1151

-1.3%

0.3%

DJIA

17006.77

2.2%

0.4%

17073.95

0.4%

16964.10

-0.3%

-0.6%

17000.36

0.0%

0.2%

16995.13

-0.1%

0.0%

17213.31

1.2%

1.3%

DAX

9824.17

3.3%

0.7%

9778.93

-0.5%

0.5%

9692.82

-1.3%

-0.9%

9723.09

-1.0%

0.3%

9498.15

-3.3%

-2.3%

9831.13

0.1%

3.5%

At the press conference after the FOMC meeting on Sep 21, 2016, Chair Yellen states (http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20160921.pdf ): “However, the economic outlook is inherently uncertain.” In the address to the Jackson Hole symposium on Aug 26, 2016, Chair Yellen states: “I believe the case for an increase in in federal funds rate has strengthened in recent months…And, as ever, the economic outlook is uncertain, and so monetary policy is not on a preset course” (http://www.federalreserve.gov/newsevents/speech/yellen20160826a.htm). In a speech at the World Affairs Council of Philadelphia, on Jun 6, 2016 (http://www.federalreserve.gov/newsevents/speech/yellen20160606a.htm), Chair Yellen finds that “there is considerable uncertainty about the economic outlook.” There are fifteen references to this uncertainty in the text of 18 pages double-spaced. In the Semiannual Monetary Policy Report to the Congress on Jun 21, 2016, Chair Yellen states (http://www.federalreserve.gov/newsevents/testimony/yellen20160621a.htm), “Of course, considerable uncertainty about the economic outlook remains.” Frank H. Knight (1963, 233), in Risk, uncertainty and profit, distinguishes between measurable risk and unmeasurable uncertainty. Is there a “science” or even “art” of central banking under this extreme uncertainty in which policy does not generate higher volatility of money, income, prices and values of financial assets? What is truly important is the fixing of the overnight fed funds at 0 to ¼ percent (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200429a.htm): “The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” In the Opening Remarks to the Press Conference on Oct 30, 2019, the Chairman of the Federal Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20191030.pdf): “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market, and inflation near our symmetric 2 percent objective. We believe monetary policy is in a good place to achieve these outcomes. Looking ahead, we will be monitoring the effects of our policy actions, along with other information bearing on the outlook, as we assess the appropriate path of the target range for the fed funds rate. Of course, if developments emerge that cause a material reassessment of our outlook, we would respond accordingly. Policy is not on a preset course.” In the Opening Remarks to the Press Conference on Jan 30, 2019, the Chairman of the Federal Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190130.pdf): “Today, the FOMC decided that the cumulative effects of those developments over the last several months warrant a patient, wait-and-see approach regarding future policy changes. In particular, our statement today says, “In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate.” This change was not driven by a major shift in the baseline outlook for the economy. Like many forecasters, we still see “sustained expansion of economic activity, strong labor market conditions, and inflation near … 2 percent” as the likeliest case. But the cross-currents I mentioned suggest the risk of a less-favorable outlook. In addition, the case for raising rates has weakened somewhat. The traditional case for rate increases is to protect the economy from risks that arise when rates are too low for too long, particularly the risk of too-high inflation. Over the past few months, that risk appears to have diminished. Inflation readings have been muted, and the recent drop in oil prices is likely to Page 3 of 5 push headline inflation lower still in coming months. Further, as we noted in our post-meeting statement, while survey-based measures of inflation expectations have been stable, financial market measures of inflation compensation have moved lower. Similarly, the risk of financial imbalances appears to have receded, as a number of indicators that showed elevated levels of financial risk appetite last fall have moved closer to historical norms. In this environment, we believe we can best support the economy by being patient in evaluating the outlook before making any future adjustment to policy.” The FOMC was initiating the “normalization” or reduction of the balance sheet of securities held outright for monetary policy (https://www.federalreserve.gov/newsevents/pressreleases/monetary20190130c.htm) with significant changes (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190320.pdf). In the opening remarks to the Mar 20, 2019, the Chairman of the Federal Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190320.pdf): “In discussing the Committee’s projections, it is useful to note what those projections are, as well as what they are not. The SEP includes participants’ individual projections of the most likely economic scenario along with their views of the appropriate path of the federal funds rate in that scenario. Views about the most likely scenario form one input into our policy discussions. We also discuss other plausible scenarios, including the risk of more worrisome outcomes. These and other scenarios and many other considerations go into policy, but are not reflected in projections of the most likely case. Thus, we always emphasize that the interest rate projections in the SEP are not a Committee decision. They are not a Committee plan. As Chair Yellen noted some years ago, the FOMC statement, rather than the dot plot, is the device that the Committee uses to express its opinions about the likely path of rates.”

Real Disposable Personal Income	Real Personal Consumption Expenditures	Prices of Personal Consumption Expenditures	PCE Prices Excluding Food and Energy
∆%12M	∆%12M	∆%12M	∆%12M
6/2017	6/2017	6/2017	6/2017
1.2	2.4	1.4	1.5

In presenting the Semiannual Monetary Policy Report to Congress on Jul 17, 2018, the Chairman of the Board of Governors of the Federal Reserve System, Jerome H. Powell, stated (https://www.federalreserve.gov/newsevents/testimony/powell20180717a.htm): “With a strong job market, inflation close to our objective, and the risks to the outlook roughly balanced, the FOMC believes that--for now--the best way forward is to keep gradually raising the federal funds rate. We are aware that, on the one hand, raising interest rates too slowly may lead to high inflation or financial market excesses. On the other hand, if we raise rates too rapidly, the economy could weaken and inflation could run persistently below our objective. The Committee will continue to weigh a wide range of relevant information when deciding what monetary policy will be appropriate. As always, our actions will depend on the economic outlook, which may change as we receive new data.”

At an address to The Clearing House and The Bank Policy Institute Annual Conference (https://www.federalreserve.gov/newsevents/speech/clarida20181127a.htm), in New York City, on Nov 27, 2018, the Vice Chairman of the Fed, Richard H. Clarida, analyzes the data dependence of monetary policy. An important hurdle is critical unobserved parameters of monetary policy (https://www.federalreserve.gov/newsevents/speech/clarida20181127a.htm): “But what if key parameters that describe the long-run destination of the economy are unknown? This is indeed the relevant case that the FOMC and other monetary policymakers face in practice. The two most important unknown parameters needed to conduct‑‑and communicate‑‑monetary policy are the rate of unemployment consistent with maximum employment, u*, and the riskless real rate of interest consistent with price stability, r*. As a result, in the real world, monetary policy should, I believe, be data dependent in a second sense: that incoming data can reveal at each FOMC meeting signals that will enable it to update its estimates of r* and u* in order to obtain its best estimate of where the economy is heading.” Current robust economic growth, employment creation and inflation close to the Fed’s 2 percent objective suggest continuing “gradual policy normalization.” Incoming data can be used to update u^* and r^* in designing monetary policy that attains price stability and maximum employment. Clarida also finds that the current expansion will be the longest in history if it continues into 2019. In an address at The Economic Club of New York, New York City, Nov 28, 2018 (https://www.federalreserve.gov/newsevents/speech/powell20181128a.htm), the Chairman of the Fed, Jerome H. Powell, stated (https://www.federalreserve.gov/newsevents/speech/powell20181128a.htm): “For seven years during the crisis and its painful aftermath, the Federal Open Market Committee (FOMC) kept our policy interest rate unprecedentedly low--in fact, near zero--to support the economy as it struggled to recover. The health of the economy gradually but steadily improved, and about three years ago the FOMC judged that the interests of households and businesses, of savers and borrowers, were no longer best served by such extraordinarily low rates. We therefore began to raise our policy rate gradually toward levels that are more normal in a healthy economy. Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy‑‑that is, neither speeding up nor slowing down growth. My FOMC colleagues and I, as well as many private-sector economists, are forecasting continued solid growth, low unemployment, and inflation near 2 percent.” The market focused on policy rates “just below the broad range of estimates of the level that would be neutral for the economy—that is, neither speeding up nor slowing down growth.” There was a relief rally in the stock market of the United States:

Fri 23

Mon 26

Tue 27

Wed 28

Thu 29

Fri 30

USD/EUR

1.1339

0.7%

0.6%

1.1328

0.1%

1.1293

0.4%

0.3%

1.1368

-0.3%

-0.7%

1.1394

-0.5%

-0.2%

1.1320

0.2%

0.6%

DJIA

24285.95

-4.4%

-0.7%

24640.24

1.5%

24748.73

1.9%

0.4%

25366.43

4.4%

2.5%

25338.84

4.3%

-0.1%

25538.46

5.2%

0.8%

At a meeting of the American Economic Association in Atlanta on Friday, January 4, 2019, the Chairman of the Fed, Jerome H. Powell, stated that the Fed would be “patient” with interest rate increases, adjusting policy “quickly and flexibly” if required (https://www.aeaweb.org/webcasts/2019/us-federal-reserve-joint-interview). Treasury yields declined and stocks jumped.

Fri 28	Mon 31	Tue 1	Wed 2	Thu 3	Fri 4
10Y Note 2.736	2.683	2.683	2.663	2.560	2.658
2Y Note 2.528	2.500	2.500	2.488	2.387	2.480
DJIA 23062.40 2.7% -0.3%	23327.46 1.1% 1.1%	23327.46 1.1% 0.0%	23346.24 1.2% 0.1%	22686.22 -1.6% -2.8%	23433.16 1.6% 3.3%
Dow Global 2718.19 1.3% 0.8%	2734.40 0.6% 0.6%	2734.40 0.6% 0.0%	2729.74 0.4% -0.2%	2707.29 -0.4% -0.8%	2773.12 2.0% 2.4%

In the Opening Remarks to the Press Conference on Jan 30, 2019, the Chairman of the Federal Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190130.pdf): “Today, the FOMC decided that the cumulative effects of those developments over the last several months warrant a patient, wait-and-see approach regarding future policy changes. In particular, our statement today says, “In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate.” This change was not driven by a major shift in the baseline outlook for the economy. Like many forecasters, we still see “sustained expansion of economic activity, strong labor market conditions, and inflation near … 2 percent” as the likeliest case. But the cross-currents I mentioned suggest the risk of a less-favorable outlook. In addition, the case for raising rates has weakened somewhat. The traditional case for rate increases is to protect the economy from risks that arise when rates are too low for too long, particularly the risk of too-high inflation. Over the past few months, that risk appears to have diminished. Inflation readings have been muted, and the recent drop in oil prices is likely to Page 3 of 5 push headline inflation lower still in coming months. Further, as we noted in our post-meeting statement, while survey-based measures of inflation expectations have been stable, financial market measures of inflation compensation have moved lower. Similarly, the risk of financial imbalances appears to have receded, as a number of indicators that showed elevated levels of financial risk appetite last fall have moved closer to historical norms. In this environment, we believe we can best support the economy by being patient in evaluating the outlook before making any future adjustment to policy.” The FOMC is initiating the “normalization” or reduction of the balance sheet of securities held outright for monetary policy (https://www.federalreserve.gov/newsevents/pressreleases/monetary20190130c.htm).

Fri 25

Mon 28

Tue 29

Wed 30

Thu 31

Fri 1

DJIA

24737.20

0.1%

0.7%

24528.22

-0.8%

24579.96

-0.6%

0.2%

25014.86

1.1%

1.8%

24999.67

1.1%

-0.1%

25063.89

1.3%

0.3%

Dow Global

2917.27

0.5%

1.0%

2899.74

-0.6%

2905.29

-0.4%

0.2%

2927.10

0.3%

0.8%

2945.73

1.0%

0.6%

2947.87

1.0%

0.1%

DJ Asia Pacific

Nikkei

20773.56

0.5%

1.0%

20649.00

-0.6%

20664.64

-0.5%

0.1%

20556.54

-1.0%

-0.5%

20773.49

0.0%

1.1%

20788.39

0.1%

Shanghai

2601.72

0.2%

0.4%

2596.98

-0.2%

2594.25

-0.3%

-0.1%

2575.58

-1.0%

-0.7%

2584.57

-0.7%

0.3%

2618.23

0.6%

1.3%

DAX

11281.79

0.7%

1.4%

11210.31

-0.6%

11218.83

-0.6%

0.1%

11181.66

-0.9%

-0.3%

11173.10

-1.0%

-0.1%

11180.66

-0.9%

0.1%

BOVESPA

97677.19

1.6%

0.0%

95443.88

-2.3%

95639.33

-2.1%

0.2%

96996.21

-0.7%

1.4%

97393.75

-0.3%

0.4%

97861.27

0.2%

0.5%

Frank H. Knight (1963, 233), in Risk, uncertainty and profit, distinguishes between measurable risk and unmeasurable uncertainty. The FOMC statement on Jun 19, 2019 analyzes uncertainty in the outlook (https://www.federalreserve.gov/newsevents/pressreleases/monetary20190619a.htm): “The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes, but uncertainties about this outlook have increased. In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.” In the Semiannual Monetary Policy Report to the Congress, on Jul 10, 2019, Chair Jerome H. Powell states (https://www.federalreserve.gov/newsevents/testimony/powell20190710a.htm): “Since our May meeting, however, these crosscurrents have reemerged, creating greater uncertainty. Apparent progress on trade turned to greater uncertainty, and our contacts in business and agriculture report heightened concerns over trade developments. Growth indicators from around the world have disappointed on net, raising concerns that weakness in the global economy will continue to affect the U.S. economy. These concerns may have contributed to the drop in business confidence in some recent surveys and may have started to show through to incoming data.

”(emphasis added). European Central Bank President, Mario Draghi, stated at a meeting on “Twenty Years of the ECB’s Monetary Policy,” in Sintra, Portugal, on Jun 18, 2019, that (https://www.ecb.europa.eu/press/key/date/2019/html/ecb.sp190618~ec4cd2443b.en.html): “In this environment, what matters is that monetary policy remains committed to its objective and does not resign itself to too-low inflation. And, as I emphasised at our last monetary policy meeting, we are committed, and are not resigned to having a low rate of inflation forever or even for now. In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required. In our recent deliberations, the members of the Governing Council expressed their conviction in pursuing our aim of inflation close to 2% in a symmetric fashion. Just as our policy framework has evolved in the past to counter new challenges, so it can again. In the coming weeks, the Governing Council will deliberate how our instruments can be adapted commensurate to the severity of the risk to price stability.” At its meeting on September 12, 2019, the Governing Council of the ECB (European Central Bank), decided to (https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190912~08de50b4d2.en.html): (1) decrease the deposit facility by 10 basis points to minus 0.50 percent while maintaining at 0.00 the main refinancing operations rate and at 0.25 percent the marginal lending facility rate; (2) restart net purchases of securities at the monthly rate of €20 billion beginning on Nov 1, 2019; (3) reinvest principal payments from maturing securities; (4) adapt long-term refinancing operations to maintain “favorable bank lending conditions;” and (5) exempt part of the “negative deposit facility rate” on bank excess liquidity. The harmonized index of consumer prices of the euro zone increased 1.2 percent in the 12 months ending in May 2019 and the PCE inflation excluding food and energy increased 1.6 percent in the 12 months ending in Apr 2019. Inflation below 2 percent with symmetric targets in both the United States and the euro zone together with apparently weakening economic activity could lead to interest rate cuts. Stock markets jumped worldwide in renewed risk appetite during the week of Jun 19, 2019 in part because of anticipation of major central bank rate cuts and also because of domestic factors:

Fri 14

Mon 17

Tue 18

Wed 19

Thu 20

Fri 21

DJIA

26089.61

0.4%

-0.1%

26112.53

0.1%

26465.54

1.4%

26504.00

1.6%

0.1%

26753.17

2.5%

0.9%

26719.13

2.4%

-0.1%

Dow Global

2998.79

0.2%

-0.4%

2999.93

0.0%

3034.59

1.2%

3050.80

1.7%

0.5%

3077.81

2.6%

0.9%

3081.62

2.8%

0.1%

DJ Asia Pacific

Nikkei

21116.89

1.1%

0.4%

21124.00

0.0%

20972.71

-0.7%

21333.87

1.0%

1.7%

21462.86

1.6%

0.6%

21258.64

0.7%

-1.0%

Shanghai

2881.97

1.9%

-1.0%

2887.62

0.2%

2890.16

0.3%

0.1%

2917.80

1.2%

1.0%

2987.12

3.6%

2.4%

3001.98

4.2%

0.5%

DAX

12096.40

0.4%

-0.6%

12085.82

-0.1%

12331.75

1.9%

2.0%

12308.53

1.8%

-0.2%

12355.39

2.1%

0.4%

12339.92

2.0%

-0.1%

BOVESPA

98040.06

0.2%

-0.7%

97623.25

-0.4%

99404.39

1.4%

1.8%

100303.41

2.3%

0.9%

100303.41

2.3%

0.0%

102012.64

4.1%

1.7%

Professor Ronald I. McKinnon (2013Oct27), writing on “Tapering without tears—how to end QE3,” on Oct 27, 2013, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702304799404579153693500945608?KEYWORDS=Ronald+I+McKinnon), finds that the major central banks of the world have fallen into a “near-zero-interest-rate trap.” World economic conditions are weak such that exit from the zero interest rate trap could have adverse effects on production, investment and employment. The maintenance of interest rates near zero creates long-term near stagnation. The proposal of Professor McKinnon is credible, coordinated increase of policy interest rates toward 2 percent. Professor John B. Taylor at Stanford University, writing on “Economic failures cause political polarization,” on Oct 28, 2013, published in the Wall Street Journal (https://www.hoover.org/research/economic-failure-causes-political-polarization), analyzes that excessive risks induced by near zero interest rates in 2003-2004 caused the financial crash. Monetary policy continued in similar paths during and after the global recession with resulting political polarization worldwide.

Table IA-1 provides annual equivalent rates of inflation for producer price indexes followed in this blog of countries and regions that account for close to three quarters of world output. The behavior of the US producer price index in 2011 and into 2012-2018 shows neatly multiple waves. (1) In Jan-Apr 2011, without risk aversion, US producer prices rose at the annual equivalent rate of 11.1 percent. (2) During risk aversion, producer prices increased in the US at the annual equivalent rate of 0.6 percent in May-Jun 2011. (3) From Jul to Sep 2011, under alternating episodes of risk aversion, producer prices increased at the annual equivalent rate of 4.1 percent. (4) Under the pressure of risk aversion because of the European debt crisis, US producer prices changed at the annual equivalent rate of 0.0 percent in Oct-Dec 2011. (5) Inflation of producer prices returned with 3.2 percent annual equivalent in Jan-Mar 2012. (6) With return of risk aversion from the European debt crisis, producer prices fell at the annual equivalent rate of 4.1 percent in Apr-May 2012. (7) New positions in commodity futures even with continuing risk aversion caused annual equivalent inflation of minus 1.2 percent in Jun-Jul 2012. (8) Relaxed risk aversion because of announcement of sovereign bond buying by the European Central Bank (https://www.ecb.europa.eu/press/pr/date/2012/html/pr120906_1.en.html) induced carry trades that resulted in annual equivalent producer price inflation in the US of 13.4 percent in Aug-Sep 2012. (9) Renewed risk aversion caused unwinding of carry trades of zero interest rates to commodity futures exposures with annual equivalent inflation of minus 2.4 percent in Oct-Dec 2012. (10) In Jan-Feb 2013, producer prices rose at the annual equivalent rate of 7.4 percent with more relaxed risk aversion at the margin. (11) Return of risk aversion resulted in annual equivalent inflation of minus 7.0 percent in Mar-Apr 2013 with worldwide portfolio reallocation toward equities and high-yield bonds and away from commodity exposures. (12) Inflation of producer prices returned at 2.7 percent in annual equivalent in May-Aug 2013. (13) Continuing reallocation of investment portfolios away from commodities into equities is causing downward pressure on prices. In Sep-Nov 2013, the US producer price index increased at the annual equivalent rate of 0.8 percent. (14) Renewed carry trades caused annual equivalent inflation of 5.7 percent in US producer prices in Dec 2013-Feb 2014. (15) Annual equivalent inflation of producer prices was 3.7 percent in Mar 2014. (16) Annual equivalent inflation of producer prices moved at 0.9 percent in Apr-Jul 2014. (17) Annual equivalent inflation of producer prices fell at 2.7 percent in Aug-Nov 2014. (18) Annual equivalent inflation fell at 17.6 percent in Dec 2014-Jan 2015. (19) Annual equivalent inflation of producer prices increased at 1.2 percent in Feb 2015. (20) Annual equivalent inflation of producer prices increased at 4.9 percent in Mar 2015. (21) Producer prices in the US fell at annual equivalent 8.1 percent in Apr 2015. (22) US producer prices increased at annual equivalent 10.7 percent in May-Jun 2015. (23) US producer prices fell at 1.2 percent annual equivalent in Jul 2015. (24) US producer prices fell at 7.4 percent annual equivalent in Aug-Oct 2015. (25) US producer prices increased at annual equivalent 1.2 percent in Nov 2015. (26) US producer prices fell at 6.6 percent in Dec 2015-Feb 2016. (27) US producer prices increased at 3.7 percent annual equivalent in Mar-May 2016. (28) US producer prices increased at 8.7 percent annual equivalent in Jun 2016. (29) US producer prices fell at 1.2 percent annual equivalent in Jul 2016. (30) US producer prices fell at 3.5 percent annual equivalent in Aug 2016. (31) Producer prices in the US increased at annual equivalent 6.2 percent in Sep-Oct 2016. (32) US producer prices decreased at 3.5 percent in Nov 2016. (33) US producer prices increased at annual equivalent 11.4 percent in Dec 2016. (34) US producer prices increased at 8.7 percent in Jan 2017. (35) US producer prices increased at 3.7 percent annual equivalent in Feb 2017. (36) US producer prices increased at annual equivalent 1.2 percent in Mar 2017. (37) US producer prices increased at annual equivalent 4.9 percent in Apr 2017. (38) US producer prices fell at 9.2 percent annual equivalent in May 2017. (39) US producer prices increased at annual equivalent 2.4 percent in Jun 2017. (39) US producer prices fell at 1.2 percent annual equivalent in Jul 2017. (40) US producer prices increased at 8.7 percent annual equivalent in Aug-Sep 2017. (41) Producer prices in the US increased at 6.8 percent annual equivalent in Oct-Nov 2017. (42) US producer prices increased at annual equivalent 1.2 percent in Dec 2017. (43) US producer prices increased at annual equivalent 3.7 percent in Jan 2018. (44) Producer prices in the US increased at annual equivalent 2.4 percent in Feb 2018. (45) US producer prices increased at annual equivalent 2.4 percent in Mar 2018. (46) US Producer prices fell at annual equivalent 3.5 percent in Apr 2018. (47) Producer prices increased at annual equivalent 8.7 percent in May 2018. (48) US producer prices increased at annual equivalent 1.8 percent in Jun-Jul 2018. (49) Producer prices decreased at annual equivalent 1.8 percent in Aug-Sep 2018. (50) US producer prices increased at annual equivalent 8.7 percent in Oct 2018. (51) US producer prices fell at annual equivalent 7.7 percent in Nov 2018-Jan 2019. (52) Producer prices in the US increased at annual equivalent 8.3 percent in Feb-Apr 2019. (53) US producer prices decreased at annual equivalent 3.0 percent in May-Jun 2019. (54) Producer prices in the US increased at annual equivalent 3.7 percent in Jul 2019. (55) US producer prices fell at annual equivalent 2.4 percent in Aug-Sep 2019. (56) Producer prices increased at annual equivalent 4.9 percent in Oct-Dec 2019. (57) US producer prices changed at annual equivalent 0.0 percent in Jan 2020. (58) Producer prices decreased at annual equivalent 20.0 percent in Feb-Apr 2020. Resolution of the European debt crisis if there is not an unfavorable growth event with political development in China would result in jumps of valuations of risk financial assets. Increases in commodity prices would cause the same high producer price inflation experienced in Jan-Apr 2011 and Aug-Sep 2012. An episode of exploding commodity prices could ignite inflationary expectations that would result in an inflation phenomenon of costly resolution. There are ten producer-price indexes in Table IA-1 for seven countries (two for the US and two for the UK) and one region (euro area) showing very similar behavior. Zero interest rates without risk aversion cause increases in commodity prices that in turn increase input prices at a faster pace than output prices. Producer price inflation rose at very high rates during the first part of 2011 for the US, Japan, China, Euro Area, Germany, France, Italy and the UK when risk aversion was contained. With the increase in risk aversion in May and Jun 2011, inflation moderated because carry trades were unwound. Producer price inflation returned after Jul 2011, with alternating bouts of risk aversion. In the final months of the year producer price inflation collapsed because of the disincentive to exposures in commodity futures resulting from fears of resolution of the European debt crisis. There is renewed worldwide inflation in the early part of 2012 with subsequent collapse because of another round of sharp risk aversion and relative portfolio reallocation away from commodities and into equities and high-yield bonds. Sharp worldwide jump in producer prices occurred recently because of near zero interest rates by reinvestment of principal in securities and issue of trillion of dollars of bank reserves in perpetuity or QE→∞ in almost continuous time with temporarily relaxed risk aversion. The FOMC decided gradual reduction of the volume of securities held outright in the Fed’s balance sheet subsequently returning to QE→∞. Alternating episodes of increase and decrease of inflation introduce uncertainty in household planning that frustrates consumption and home buying. Producer prices were moderating or falling in the final months of 2012 because of renewed risk aversion that causes unwinding of carry trades from zero interest rates to commodity futures exposures. In the first months of 2013, new carry trades caused higher worldwide inflation. Inflation of producer prices returned in the US and Japan in Dec 2013-Jan 2014. Lower inflation recently originates in portfolio reallocations away from commodity exposures into equities. Unconventional monetary policy fails in stimulating the overall real economy, merely introducing undesirable instability because monetary authorities cannot control allocation of floods of money at zero interest rates to carry trades into risk financial assets. The economy is constrained in a suboptimal allocation of resources that monetary policy perpetuates along a continuum of short-term periods. The result is long-term or dynamic inefficiency in the form of a trajectory of economic activity that is lower than what would be attained with rules instead of discretionary authorities in monetary policy (https://cmpassocregulationblog.blogspot.com/2020/02/recovery-without-hiring-in-lost.html and earlier https://cmpassocregulationblog.blogspot.com/2019/12/increase-in-valuations-of-risk_14.html). Inflation of producer prices returned in the US and Japan in Dec 2013-Jan 2014 and fell in Mar 2014 as part of the general instability of economic and financial variables. Inflation returned in Apr-Jun 2014 with reallocations of portfolios toward commodities during various geopolitical events. Inflation is subdued in Jul-2014-Apr 2015 with reallocations of portfolios away from commodities, returning in May-Jun 2015 for some countries. Prices fell in multiple countries in Jul-Oct 2015 with mixed behavior in Nov-Dec 2015 and into Jan-Mar 2016. There is higher inflation in many countries and areas in Mar-Jun 2016. Prices fell in various indexes in Jul 2016 with increases in some price indexes in Aug-Sep 2016 and Oct 2016 with mixed behavior in Nov 2016. Prices increased in Dec 2016 and Jan 2017, with increases mostly at lower rates in Feb 2017. Prices decreased in some indexes in Mar 2017 and increased in Apr 2017, decreasing in May-Jul 2017. Prices increased in Aug-Nov 2017, increasing in Dec 2017 in multiple indexes. Some indexes increased in Jan-Feb 2018 while others decreased. Some indexes increased in Mar 2018 and some decreased in Apr 2018. Some prices increased in May-Jul 2018 and some declined in Aug-Sep 2018 with exceptions of increases. Prices increased in Oct 2018. Some prices decreased in Nov 2018. Several prices decreased in Dec 2018 to Jan 2019. Prices increased in Feb-Apr 2019. Several prices decreased in May-Jun 2019. Some prices increased in Jul 2019 and several decreased in Aug 2019. Some prices decreased in Sep 2019. Several prices increased in Oct 2019. There were mixed increases and decreases in Nov 2019. Some prices increased in Dec 2019 to Jan 2020. Several prices decreased in Feb-Apr 2020.

Table IA-1, Annual Equivalent Rates of Producer Price Indexes

Index 2011-2020	AE ∆%
US Producer Finished Goods Price Index
AE ∆% Feb-Apr 2020	-20.0
AE ∆% Jan 2020	0.0
AE ∆% Oct-Dec 2019	4.9
AE ∆% Aug-Sep 2019	-2.4
AE ∆% Jul 2019	3.7
AE ∆% May-Jun 2019	-3.0
AE ∆% Feb-Apr 2019	8.3
AE ∆% Nov 2018-Jan 2019	-7.7
AE ∆% Oct 2018	8.7
AE ∆% Aug-Sep 2018	1.8
AE ∆% Jun-Jul 2018	1.8
AE ∆% May 2018	8.7
AE ∆% Apr 2018	-3.5
AE ∆% Mar 2018	2.4
AE ∆% Feb 2018	2.4
AE ∆% Jan 2018	3.7
AE ∆% Dec 2017	1.2
AE ∆% Oct-Nov 2017	6.8
AE ∆% Aug-Sep 2017	8.7
AE ∆% Jul 2017	-1.2
AE ∆% Jun 2017	2.4
AE ∆% May 2017	-9.2
AE ∆% Apr 2017	4.9
AE ∆% Mar 2017	1.2
AE ∆% Feb 2017	3.7
AE ∆% Jan 2017	8.7
AE ∆% Dec 2016	11.4
AE ∆% Nov 2016	-3.5
AE ∆% Sep-Oct 2016	6.2
AE ∆% Aug 2016	-3.5
AE ∆% Jul 2016	-1.2
AE ∆% Jun 2016	8.7
AE ∆% Mar-May 2016	3.7
AE ∆% Dec 2015-Feb 2016	-6.6
AE ∆% Nov 2015	1.2
AE ∆% Aug-Oct 2015	-7.4
AE ∆% Jul 2015	-1.2
AE ∆% May-Jun 2015	10.7
AE ∆% Apr 2015	-8.1
AE ∆% Mar 2015	4.9
AE ∆% Feb 2015	1.2
AE ∆% Dec 2014-Jan 2015	-17.6
AE ∆% Aug-Nov 2014	-2.7
AE ∆% Apr-Jul 2014	0.9
AE ∆% Mar 2014	3.7
AE ∆% Dec 2013-Feb 2014	5.7
AE ∆% Sep-Nov 2013	0.8
AE ∆% May-Aug 2013	2.7
AE ∆% Mar-Apr 2013	-7.0
AE ∆% Jan-Feb 2013	7.4
AE ∆% Oct-Dec 2012	-2.4
AE ∆% Aug-Sep 2012	13.4
AE ∆% Jun-Jul 2012	-1.2
AE ∆% Apr-May 2012	-4.1
AE ∆% Jan-Mar 2012	3.2
AE ∆% Oct-Dec 2011	0.0
AE ∆% Jul-Sep 2011	4.1
AE ∆% May-Jun 2011	0.6
AE ∆% Jan-Apr 2011	11.1
US Final Demand Producer Price Index
AE ∆% Feb-Apr 2020	-8.1
AE ∆% Dec-Jan 2020	4.3
AE ∆% Oct-Nov 2019	1.2
AE ∆% Sep 2019	-3.5
AE ∆% Jun-Aug 2019	0.8
AE ∆% May 2019	2.4
AE ∆% Feb-Apr 2019	4.1
AE ∆% Dec 2018-Jan 2019	-2.4
AE ∆% Nov 2018	-1.2
AE ∆% Sep-Oct 2018	5.5
AE ∆% Jul-Aug 2018	1.2
AE ∆% Apr-Jun 2018	3.2
AE ∆% Jan-Mar 2018	4.1
AE ∆% Dec 2017	0.0
AE ∆% Aug-Nov 2017	4.9
AE ∆% Jul 2017	1.2
AE ∆% May-Jun 2017	0.4
AE ∆% Apr 2017	4.9
AE ∆% Mar 2017	2.4
AE ∆% Feb 2017	0.0
AE ∆% Jan 2017	4.9
AE ∆% Nov-Dec 2016	3.0
AE ∆% Oct 2016	2.4
AE ∆% Sep 2016	4.9
AE ∆% Aug 2016	-2.4
AE ∆% Jul 2016	-1.2
AE ∆% Apr-Jun 2016	3.7
AE ∆% Feb-Mar 2016	-1.8
AE ∆% Jan 2016	4.9
AE ∆% Dec 2015	-1.2
AE ∆% Nov 2015	1.2
AE ∆% Sep-Oct 2015	-4.1
AE ∆% Aug 2015	-2.4
AE ∆% May-Jul 2015	3.7
AE ∆% Apr 2015	-2.4
AE ∆% Mar 2015	2.4
AE ∆% Jan-Feb 2015	-6.4
AE ∆% Nov-Dec 2014	-3.0
AE ∆% Oct 2014	2.4
AE ∆% Aug-Sep 2014	-1.2
AE ∆% Mar-Jul 2014	2.4
AE ∆% Dec 2013-Feb 2014	2.4
AE ∆% Sep-Nov 2013	1.6
AE ∆% May-Aug 2013	1.8
AE ∆% Mar-Apr 2013	-1.2
AE ∆% Jan-Feb 2013	3.0
AE ∆% Oct-Dec 2012	0.8
AE ∆% Aug-Sep 2012	6.2
AE ∆% Jun-Jul 2012	-2.4
AE ∆% Apr-May 2012	1.2
AE ∆% Jan-Mar 2012	3.7
AE ∆% Oct-Dec 2011	-0.8
AE ∆% Jul-Sep 2011	3.2
AE ∆% May-Jun 2011	2.4
AE ∆% Jan-Apr 2011	7.4
Japan Corporate Goods Price Index
AE ∆% Feb-Apr 2020	-10.7
AE ∆% Nov 2019-Jan 2020	1.2
AE ∆% Oct-2019	15.4
AE ∆% Jul-Sep 2019	-1.2
AE ∆% May-Jun 2019	-4.1
AE ∆% Feb-Apr 2019	4.1
AE ∆% Nov 2018-Jan 2019	-5.8
AE ∆% Sep-Oct 2018	3.7
AE ∆% Aug 2018	0.0
AE ∆% Apr-Jul 2018	4.9
AE ∆% Feb-Mar 2018	-0.6
AE ∆% Dec 2017-Jan 2018	3.0
AE ∆% Sep-Nov 2017	4.5
AE ∆% Jul-Aug 2017	1.8
AE ∆% May-Jun 2017	0.6
AE ∆% Feb-Apr 2017	2.8
AE ∆% Nov 2016-Jan 2017	7.0
AE ∆% Aug-Oct 2016	-1.2
AE ∆% Jun-Jul 2016	-0.6
AE ∆% May 2016	0.0
AE ∆% Feb-Apr 2016	-3.2
AE ∆% Dec 2015-Jan 2016	-8.6
AE ∆% Nov 2015	0.0
AE ∆% Aug-Oct 2015	-7.0
AE ∆% Jun-Jul 2015	-3.0
AE ∆% Mar-May 2015	1.6
AE ∆% Jan-Feb 2015	-7.6
AE ∆% Aug-Dec 2014	-4.5
AE ∆% Apr-Jul 2014	11.6
AE ∆% Feb-Mar 2014	-1.2
AE ∆% Dec 2013-Jan 2014	3.0
AE ∆% Oct-Nov 2013	-0.6
AE ∆% Dec 2012-Sep 2013	3.3
AE ∆% Oct-Nov 2012	-3.0
AE ∆% Aug-Sep 2012	2.4
AE ∆% May-Jul 2012	-5.1
AE ∆% Feb-Apr 2012	2.0
AE ∆% Dec 2011-Jan 2012	-0.6
AE ∆% Jul-Nov 2011	-2.1
AE ∆% May-Jun 2011	-1.2
AE ∆% Jan-Apr 2011	5.5
China Producer Price Index	XX
AE ∆% Feb-Apr 2020	-10.6
AE ∆% Nov 2019-Jan 2020	-0.4
AE ∆% Sep-Oct 2019	1.2
AE ∆% Jun-Aug 2019	-2.4
AE ∆% Mar-May 2019	2.4
AE ∆% Nov 2018-Feb 2019	-5.6
AE ∆% Aug-Oct 2018	5.7
AE ∆% May-Jul 2018	3.2
AE ∆% Feb-Apr 2018	-2.0
AE ∆% Jan 2018	3.7
AE ∆% Aug-Dec 2017	9.8
AE ∆% Jul 2017	2.4
AE ∆% Apr-Jun 2017	-3.5
AE ∆% Jan-Mar 2017	7.0
AE ∆% Nov-Dec 2016	20.3
AE ∆% Sep-Oct 2016	11.3
AE ∆% Jul-Aug 2016	2.4
AE ∆% Jun 2016	-2.4
AE ∆% Mar-May 2016	7.0
AE ∆% Jan-Feb 2016	-4.7
AE ∆% Sep-Dec 2015	-5.6
AE ∆% Jun-Aug 2015	-7.3
AE ∆% Mar-May 2015	-2.0
AE ∆% Jan-Feb 2015	-10.3
AE ∆% Nov-Dev 2014	-6.4
AE ∆% Oct 2013-Oct 2014	-2.2
AE ∆% Aug-Sep 2013	1.8
AE ∆% Mar-Jul 2013	-4.9
AE ∆% Jan-Feb 2013	2.4
AE ∆% Nov-Dec 2012	-1.2
AE ∆% Oct 2012	2.4
AE ∆% May-Sep 2012	-5.8
AE ∆% Feb-Apr 2012	2.4
AE ∆% Dec 2011-Jan 2012	-2.4
AE ∆% Jul-Nov 2011	-3.1
AE ∆% Jan-Jun 2011	6.4
Euro Zone Industrial Producer Prices
AE ∆% Feb-Mar 2020	-12.4
AE ∆% Dec-Jan 2019	1.8
AE ∆% Sep-Nov 2019	1.6
AE ∆% Aug 2019	-5.8
AE ∆% Jul 2019	1.2
AE ∆% Jun 2019	-7.0
AE ∆% Mar-May 2019	-2.0
AE ∆% Jan-Feb 2019	2.4
AE ∆% Nov-Dec 2018	-6.4
AE ∆% Jul-Oct 2018	7.8
AE ∆% May-Jun 2018	8.1
AE ∆% Feb-Apr 2018	0.0
AE ∆% Dec-Jan 2017	3.7
AE ∆% Sep-Nov 2017	5.3
AE ∆% Aug 2017	3.7
AE ∆% May-Jul 2017	-1.6
AE ∆% Feb-Apr 2017	-1.2
AE ∆% Dec 2016-Jan 2017	11.3
AE ∆% Oct-Nov 2016	5.5
AE ∆% Sep 2016	2.4
AE ∆% Aug 2016	-2.4
AE ∆% Jul 2016	4.9
AE ∆% May-Jun 2016	7.4
7AE ∆% Apr 2016	-4.7
AE ∆% Mar 2016	3.7
AE ∆% Dec 2015-Feb 2016	-9.2
AE ∆% Oct-Nov 2015	-3.0
AE ∆% Jul-Sep 2015	-5.1
AE ∆% Apr-Jun 2015	0.0
AE ∆% Feb-Mar 2015	4.9
AE ∆% Dec 2014-Jan 2015	-11.9
AE ∆% Oct-Nov 2014	-3.5
AE ∆% Sep 2014	2.4
AE ∆% Jul-Aug 2014	-3.0
AE ∆% Jun 2014	2.4
AE ∆% Jan-May 2014	-2.6
AE ∆% Dec 2013	2.4
AE ∆% Oct-Nov 2013	-3.0
AE ∆% Jul-Sep 2013	1.2
AE ∆% Mar-Jun 2013	-3.8
AE ∆% Jan-Feb 2013	3.7
AE ∆% Nov-Dec 2012	-3.0
AE ∆% Sep-Oct 2012	0.6
AE ∆% Jul-Aug 2012	7.4
AE ∆% Apr-Jun 2012	-2.0
AE ∆% Jan-Mar 2012	7.4
AE ∆% Oct-Dec 2011	0.4
AE ∆% Jul-Sep 2011	2.8
AE ∆% May-Jun 2011	-0.6
AE ∆% Jan-Apr 2011	11.3
Germany Producer Price Index
AE ∆% Feb 2019	-1.2 NSA -2.4 SA
AE ∆% Jan 2019	4.9 NSA 2.4 SA
AE ∆% Dec 2018	-4.7 NSA -1.2 SA
AE ∆% Nov 2018	1.2 NSA 2.4 SA
AE ∆% Sep-Oct 2018	4.9 NSA 4.3 SA
AE ∆% Jun-Aug 2018	3.7 NSA 3.7 SA
AE ∆% Apr-May 2018	5.5 NSA 4.9 SA
AE ∆% Mar-2018	1.2 NSA 2.4 SA
AE ∆% Feb 2018	-1.2 NSA 1.2 SA
AE ∆% Jan 2018	6.2 NSA 2.4 SA
AE ∆% Nov-Dec 2017	1.8 NSA 1.8 SA
AE ∆% Sep-Oct 2017	3.0 NSA 2.4 SA
AE ∆% Jul-Aug 2017	1.8 NSA 2.4 SA
AE ∆% May-Jun 2017	-0.6 NSA -0.6 SA
AE ∆% Apr 2017	3.7 NSA 2.4 SA
AE ∆% Feb-Mar 2017	1.8 NSA 3.7 SA
AE ∆% Oct 2016-Jan 2017	5.9 NSA 4.9 SA
AE ∆% Aug-Sep 2016	-1.2 NSA 0.6 SA
AE ∆% May-Jul 2016	3.7 NSA 2.0 SA
AE ∆% Apr 2016	2.4 NSA -0.0 SA
AE ∆% Mar 2016	-1.2 NSA -1.2 SA
AE ∆% Dec 2015-Feb 2016	-5.5 NSA -3.5 SA
AE ∆% Nov 2015	-3.5 NSA -3.5 SA
AE ∆% Aug-Oct 2015	-4.7 NSA -3.5 SA
AE ∆% May-Jul 2015	-0.4 NSA -2.0 SA
AE ∆% Feb-Apr 2015	1.2 NSA -0.4 SA
AE ∆% Oct 2014-Jan 2015	-4.1 NSA -2.4 SA
AE ∆% Jan-Sep 2014	-1.2 NSA -1.5 SA
AE ∆% Dec 2013	1.2 NSA 2.4 SA
AE ∆% Oct-Nov 2013	-1.8 NSA –1.8 SA
AE ∆% Sep 2013	3.7 NSA – 0.0 SA
AE ∆% May-Aug 2013	-1.8 NSA –1.2 SA
AE ∆% Feb-Apr 2013	-2.4 NSA –2.0 SA
AE ∆% Jan 2013	7.4 NSA 2.4 SA
AE ∆% Oct-Dec 2012	-0.8 NSA 0.8 SA
AE ∆% Aug-Sep 2012	4.3 NSA 2.4 SA
AE ∆% May-Jul 2012	-2.8 NSA -0.4 SA
AE ∆% Feb-Apr 2012	4.9 NSA 2.4 SA
AE ∆% Dec 2011-Jan 2012	0.0 NSA –1.2 SA
AE ∆% Oct-Nov 2011	0.6 NSA 1.8 SA
AE ∆% Jul-Sep 2011	2.0 NSA 2.8 SA
AE ∆% May-Jun 2011	0.6 NSA 3.7 SA
AE ∆% Jan-Apr 2011	10.0 NSA 5.9 SA
France Producer Price Index for the French Market
AE ∆% Jan-Mar 2020	-10.3
AE ∆% Dec 2019	1.2
AE ∆% Nov 2019	18.2
AE ∆% Aug-Oct 2019	0.0
AE ∆% Jul 2019	4.9
AE ∆% Apr-Jun 2019	-7.7
AE ∆% Mar 2019	-1.2
AE ∆% Jan-Feb 2019	4.9
AE ∆% Dec 2018	-12.4
AE ∆% Aug-Nov 2018	5.2
AE ∆% Jul 2018	7.4
AE ∆% Jun 2018	0.0
AE ∆% May 2018	8.7
AE ∆% Apr 2018	-9.2
AE ∆% Feb-Mar 2018	1.2
AE ∆% Dec 2017-Jan 2018	1.8
AE ∆% Nov 2017	22.4
AE ∆% Aug-Oct 2017	4.5
AE ∆% Jul 2017	1.2
AE ∆% Apr-Jun 2017	-4.7
AE ∆% Feb-Mar 2017	-4.1
AE ∆% Oct 2016-Jan 2017	9.4
AE ∆% Sep 2016	3.7
AE ∆% Jul-Aug 2016	0.0
AE ∆% May-Jun 2016	5.5
AE ∆% Apr 2016	-7.0
AE ∆% Mar 2016	2.4
AE ∆% Feb 2016	-4.7
AE ∆% Dec 2015-Jan 2016	-12.4
AE ∆% Sep-Nov 2015	1.2
AE ∆% Aug 2015	-12.4
AE ∆% Jun-Jul 2015	-0.6
AE ∆% Apr-May 2015	-4.1
AE ∆% Feb-Mar 2015	6.8
AE ∆% Oct 2014-Jan 2015	-5.6
AE ∆% Sep 2014	7.4
AE ∆% Jan-Aug 2014	-4.0
AE ∆% Nov-Dec 2013	5.5
AE ∆% Oct 2013	-2.4
AE ∆% Jul-Sep 2013	4.5
AE ∆% Apr-Jun 2013	-10.7
AE ∆% Jan-Mar 2013	5.3
AE ∆% Nov-Dec 2012	-4.1
AE ∆% Jul-Oct 2012	7.4
AE ∆% Apr-Jun 2012	-4.3
AE ∆% Jan-Mar 2012	5.7
AE ∆% Oct-Dec 2011	2.8
AE ∆% Jul-Sep 2011	3.2
AE ∆% May-Jun 2011	-1.8
AE ∆% Jan-Apr 2011	10.0
Italy Producer Price Index
AE ∆% Jan-Mar 2020	-8.5
AE ∆% Nov 2019-Dec 2019	-1.8
AE ∆% Sep-Oct 2019	0.6
AE ∆% Jun-Aug 2019	-5.1
AE ∆% May 2019	1.2
AE ∆% Jan-Apr 2019	-5.3
AE ∆% Nov-Dec 2018	-7.5
AE ∆% Jun-Oct 2018	12.4
AE ∆% May 2018	12.7
AE ∆% Apr 2018	-8.1
AE ∆% Jan-Mar 2018	5.3
AE ∆% Dec 2017	0.0
AE ∆% Sep-Nov 2017	3.2
AE ∆% Aug 2017	6.2
AE ∆% Jun-Jul 2017	-1.2
AE ∆% May 2017	-3.5
AE ∆% Apr 2017	1.2
AE ∆% Mar 2017	-2.4
AE ∆% Dec 2016-Feb 2017	8.3
AE ∆% Nov 2016	-1.2
AE ∆% Aug-Oct 2016	-2.0
AE ∆% May-Jul 2016	11.8
AE ∆% Apr 2016	-9.2
AE ∆% Mar 2016	2.4
AE ∆% Dec 2015-Feb 2016	-7.3
AE ∆% Oct-Nov 2015	-4.7
AE ∆% Jun-Sep 2015	-4.4
AE ∆% May 2015	3.7
AE ∆% Apr 2015	-2.4
AE ∆% Feb-Mar 2015	3.7
AE ∆% Dec 2014-Jan 2015	-14.0
AE ∆% Oct-Nov 2014	-3.5
AE ∆% Sep 2014	1.2
AE ∆% Jul-Aug 2014	-3.5
AE ∆% Jun 2014	2.4
AE ∆% Oct 2013-May 2014	-2.7
AE ∆% Jun-Sep 2013	0.3
AE ∆% Apr-May 2013	-3.5
AE ∆% Feb-Mar 2013	1.2
AE ∆% Sep 2012-Jan 2013	-5.2
AE ∆% Jul-Aug 2012	9.4
AE ∆% May-Jun 2012	-0.6
AE ∆% Mar-Apr 2012	6.8
AE ∆% Jan-Feb 2012	8.1
AE ∆% Oct-Dec 2011	2.0
AE ∆% Jul-Sep 2011	4.9
AE ∆% May-Jun 2011	1.8
AE ∆% Jan-April 2011	10.7
UK Output Prices
∆% Feb-Apr 2020	-4.3
∆% Jan 2020	2.4
∆% Dec 2019	-1.2
∆% Aug-Nov 2019	-1.2
∆% Jul 2019	3.7
∆% Jun 2019	-1.2
∆% Mar-May 2019	2.8
∆% Jan-Feb 2019	1.8
∆% Dec 2018	-3.5
∆% Sep-Nov 2018	2.8
∆% Jul-Aug 2018	1.8
∆% Jun 2018	3.7
∆% Mar-May 2018	4.9
∆% Jan-Feb 2018	1.8
∆% Nov-Dec 2017	4.3
∆% Aug-Oct 2017	3.7
∆% May-Jul 2017	1.2
∆% Mar-Apr 2017	4.9
∆% Feb 2017	2.4
∆% Jan 2017	7.4
∆% Nov-Dec 2016	2.4
∆% Aug-Oct 2016	4.9
∆% May-Jul 2016	2.4
∆% Feb-Apr 2016	4.1
∆% Jan 2016	-1.2
∆% Sep-Dec 2015	-2.4
∆% Aug 2015	-5.8
∆% Jun-Jul 2015	-1.2
∆% Feb-May 2015	1.5
AE ∆% Nov 2014-Jan 2015	-4.3
AE ∆% Sep-Oct 2014	-4.7
AE ∆% Apr-Aug 2014	-0.7
AE ∆% Jan-Mar 2014	2.0
AE ∆% Sep-Dec 2013	-1.5
AE ∆% Jun-Aug 2013	2.0
AE ∆% Apr-May 2013	-0.6
AE ∆% Jan-Mar 2013	4.9
AE ∆% Nov-Dec 2012	-2.4
AE ∆% Jul-Oct 2012	3.0
AE ∆% May-Jun 2012	-3.5
AE ∆% Feb-Apr 2012	5.3
AE ∆% Nov 2011-Jan-2012	1.2
AE ∆% May-Oct 2011	1.6
AE ∆% Jan-Apr 2011	10.0
UK Input Prices
AE ∆% Feb-Apr 2020	-33.0
AE ∆% Nov 2019-Jan 2020	8.3
AE ∆% Aug-Oct 2019	-8.8
AE ∆% Jul 2019	8.7
AE ∆% Jun 2019	-9.2
AE ∆% May 2019	0.0
AE ∆% Apr 2019	26.8
AE ∆% Mar 2019	-10.3
AE ∆% Feb 2019	12.7
AE ∆% Nov 2018-Jan 2019	-17.3
AE ∆% Aug-Oct 2018	15.8
AE ∆% Jun-Jul 2018	1.8
AE ∆% Apr-May 2018	24.5
AE ∆% Mar 2018	1.2
AE ∆% Feb 2018	-4.7
AE ∆% Dec 2017-Jan 2018	3.7
AE ∆% Aug-Nov 2017	18.5
AE ∆% May-Jul 2017	-3.9
AE ∆% Mar-Apr 2017	-6.4
AE ∆% Feb 2017	0.0
AE ∆% Dec 2016-Jan 2017	25.3
AE ∆% Nov 2016	-7.0
AE ∆% Oct 2016	67.7
AE ∆% Sep 2016	4.9
AE ∆% Aug 2016	3.7
AE ∆% May-Jul 2016	32.9
AE ∆% Feb-Apr 2016	12.2
AE ∆% Jan 2016	-14.5
AE ∆% Oct-Dec 2015	-7.4
AE ∆% Sep 2015	6.2
AE ∆% May-Aug 2015	-19.9
AE ∆% Feb-Apr 2015	6.6
AE ∆% Dec 2014-Jan 2015	-34.4
AE ∆% Jun-Nov 2014	-12.3
AE ∆% May 2014	2.4
AE ∆% Jan-Apr 2014	-7.8
AE ∆% Dec 2013	3.7
AE ∆% Aug-Nov 2013	-8.4
AE ∆% Jul 2013	18.2
AE ∆% Mar-Jun 2013	-9.5
AE ∆% Jan-Feb 2013	24.6
AE ∆% Sep-Dec 2012	3.0
AE ∆% Aug 2012	23.9
AE ∆% Apr-Jul 2012	-16.1
AE ∆% Jan-Mar 2012	14.9
AE ∆% Nov-Dec 2011	0.0
AE ∆% May-Oct 2011	-1.3
AE ∆% Jan-Apr 2011	30.6
AE ∆% Oct-Dec 2010	31.8

AE: Annual Equivalent

Sources: https://www.bls.gov/ppi/ https://www.boj.or.jp/en/index.htm/

http://www.stats.gov.cn/english/PressRelease/ https://ec.europa.eu/eurostat/data/database

https://www.destatis.de/EN/Home/_node.html

https://www.insee.fr/en/accueil

https://www.istat.it/en/

https://www.ons.gov.uk/

Similar world inflation waves are in the behavior of consumer price indexes of six countries and the euro zone in Table IA-2. US consumer price inflation shows similar waves. (1) Under risk appetite in Jan-Apr 2011, US consumer prices increased at the annual equivalent rate of 4.9 percent. (2) Risk aversion caused the collapse of inflation to annual equivalent 1.8 percent in May-Jun 2011. (3) Risk appetite drove the rate of consumer price inflation in the US to 3.2 percent in Jul-Sep 2011. (4) Gloomier views of carry trades caused the collapse of inflation in Oct-Nov 2011 to annual equivalent 1.8 percent. (5) Consumer price inflation resuscitated with increased risk appetite at annual equivalent of 1.8 percent in Dec 2011 to Jan 2012. (6) Consumer price inflation returned at 2.4 percent annual equivalent in Feb-Apr 2012. (7) Under renewed risk aversion, annual equivalent consumer price inflation in the US was minus 1.2 percent in May-Jul 2012. (8) Inflation jumped to annual equivalent 5.7 percent in Aug-Oct 2012. (9) Unwinding of carry trades caused annual equivalent inflation of 0.0 percent in Nov 2012-Jan 2013 but some countries experienced higher inflation in Dec 2012 and Jan 2013. (10) Inflation jumped again with annual equivalent inflation of 6.2 percent in Feb 2013 in a mood of relaxed risk aversion. (11) Inflation fell at 3.0 percent annual equivalent in Mar-Apr 2013. (12) Inflation rose at 1.4 percent in annual equivalent in May-Sep 2013. (13) Inflation moderated at the annual equivalent rate of 1.8 percent in Oct-Nov 2013. (14) Inflation stood at annual equivalent 2.4 percent in Dec 2013-Mar 2014. (15) Inflation returned at annual equivalent 1.8 percent in Apr-Jul 2014. (16) Annual equivalent inflation was 0.0 percent in Aug 2014. (17) Inflation was 0.0 percent in annual equivalent in Sep-Oct 2014. (18) Inflation fell at annual equivalent 4.3 percent in Nov 2014-Jan 2015. (19) Inflation increased at annual equivalent 3.2 percent in Feb-Jun 2015. (20) Annual equivalent inflation was 2.4 percent in Jul 2015. (21) Annual equivalent inflation was minus 1.2 percent in Aug-Sep 2015. (22) US consumer prices increased at annual equivalent 1.2 percent in Oct-Nov 2015. (23) US consumer prices decreased at annual equivalent 0.6 percent in Dec 2015-Jan 2016. (24) US consumer prices fell at annual equivalent 1.2 percent in Feb 2016. (25) US consumer prices increased at annual equivalent 3.7 percent in Mar-Apr 2016. (26) US consumer prices increased at annual equivalent 3.7 percent in May-Jun 2016. (27) Consumer prices changed at annual equivalent 0.0 percent in Jul 2016. (28) US consumer prices increased at annual equivalent 2.4 percent in Aug 2016. (29) Consumer prices increased at annual equivalent 2.4 percent in Sep-Oct 2016. (30) US consumer prices increased at 2.4 percent annual equivalent in Nov-Dec 2016. (31) Consumer prices increased at annual equivalent 4.9 percent in Jan 2017. (32) Consumer prices in the US increased at annual equivalent 1.2 percent in Feb 2017. (33) Consumer prices fell at 1.2 percent in Mar 2017. (34) Consumer prices increased at annual equivalent 1.2 percent in Apr 2017. (35) Consumer prices changed at annual equivalent 0.0 percent in May-Jun 2017. (36) Consumer prices increased at 1.2 percent annual equivalent in Jul 2017. (37) Consumer prices increased at annual equivalent 5.5 percent in Aug-Sep 2017. (38) US consumer prices increased at annual equivalent 2.4 percent in Oct-Nov 2017. (39) Prices of consumers in the US increased at annual equivalent 3.7 percent in Dec 2017-Feb 2018. (40) US consumer prices changed at 0.0 percent in Mar 2018. (41) Prices of consumers increased at 3.0 percent in Apr-May 2018. (42) Prices of consumers in the US increased at 1.8 percent annual equivalent in Jun-Sep 2018. (43) US consumer prices increased at annual equivalent 2.4 percent in Oct 2018. (44) Prices of consumers in the US changed at 0.0 percent in Nov 2018-Jan 2019. (45) US consumer prices increased at annual equivalent 3.7 percent in Feb-Apr 2019. (46) Prices of consumers in the US increased at 1.2 percent annual equivalent in May-Jun 2019. (47) US consumer prices increased at 3.7 percent annual equivalent in Jul 2019. (48) Prices of consumers in the US increased at 1.2 percent annual equivalent in Aug-Sep 2019. (49) US consumer prices increased at annual equivalent 2.4 percent in Oct-Dec 2019. (50) Prices of consumers in the US increased at annual equivalent 1.2 percent in Jan-Feb 2020. (51) Prices of consumers decreased at annual equivalent 7.0 percent in Mar-Apr 2020. Inflationary expectations can be triggered in one of these episodes of accelerating inflation because of commodity carry trades induced by unconventional monetary policy of zero interest rates by reinvestment of principal in securities and issue of trillion of dollars of bank reserves in perpetuity or QE→∞ in almost continuous time. The FOMC is again engaging in increase of the balance sheet depending on data. The balance sheet is swelling in the COVID-19 event. Alternating episodes of increase and decrease of inflation introduce uncertainty in household planning that frustrates consumption and home buying. Announcement of purchases of impaired sovereign bonds by the European Central Bank (https://www.ecb.europa.eu/press/pr/date/2012/html/pr120906_1.en.html) relaxed risk aversion that induced carry trades into commodity exposures, increasing prices of food, raw materials and energy. There is similar behavior in the other consumer price indexes in Table IA-2. China’s CPI increased at annual equivalent 8.3 percent in Jan-Mar 2011, 2.0 percent in Apr-Jun, 2.9 percent in Jul-Nov and resuscitated at 5.8 percent annual equivalent in Dec 2011 to Mar 2012, declining to minus 3.9 percent in Apr-Jun 2012 but resuscitating at 4.1 percent in Jul-Sep 2012, declining to minus 1.2 percent in Oct 2012 and 0.0 percent in Oct-Nov 2012. High inflation in China at annual equivalent 5.5 percent in Nov-Dec 2012 is attributed to inclement winter weather that caused increases in food prices. Continuing pressure of food prices caused annual equivalent inflation of 12.2 percent in China in Dec 2012 to Feb 2013. Inflation in China fell at annual equivalent 10.3 percent in Mar 2013 and increased at annual equivalent 2.4 percent in Apr 2013. Adjustment to lower food prices caused annual equivalent inflation of minus 7.0 percent in May 2013 and minus 3.5 percent in annual equivalent in May-Jun 2013. Inflation in China returned at annual equivalent 4.6 percent in Jul-Oct 2013, falling at 1.2 percent in annual equivalent in Nov 2013. As in many countries, inflation in China surged at 7.4 percent annual equivalent in Dec 2013-Feb 2014 with significant effects of local increases in food prices. Annual equivalent inflation in China fell at 4.7 percent in Mar-Apr 2014 and increased at 1.2 percent in May 2014. China’s inflation fell at annual equivalent 1.2 percent in Jun 2014 and increased at annual equivalent 2.4 percent in Jul-Oct 2014. Inflation in China fell at annual equivalent 2.4 percent in Nov 2014 and increased at annual equivalent 7.4 percent in Dec 2014-Feb 2015. Consumer prices in China fell at annual equivalent 2.7 percent in Mar-Jun 2015. China’s consumer prices increased at annual equivalent 4.9 percent in Jul-Aug 2015. China’s consumer prices increased at annual equivalent 1.2 percent in Sep 2015. The consumer price index of China decreased at 3.5 percent in Oct 2015 and increased at 4.1 percent in Nov 2015-Jan 2016. The consumer price index of China increased at annual equivalent 21.0 percent in Feb 2016 and fell at 3.5 percent annual equivalent in Mar-Jun 2016. China’s consumer prices increased at 1.8 percent in Jul-Aug 2016. The consumer price index of China increased at 8.7 percent annual equivalent in Sep 2016. Consumer prices fell at 1.2 percent in Oct 2016 and increased at 1.2 percent in Nov-Dec 2016. The consumer price index of China increased at annual equivalent 12.7 percent in Jan 2017. China’s consumer price index fell at annual equivalent 3.0 percent in Feb-Mar 2017. The consumer price index of China increased at 1.2 percent in Apr 2017 and fell at 1.8 percent in May-Jun 2017. China’s consumer prices increased at 1.2 percent annual equivalent in Jul 2017. The consumer price index of China increased at 4.1 percent annual equivalent in Aug-Oct 2017. China’s consumer prices changed at 0.0 percent in Nov 2017. The consumer price index of China increased at annual equivalent 3.7 percent in Dec 2017. China’s consumer prices increased at annual equivalent 11.3 percent in Jan-Feb 2018. The consumer price index of China fell at 4.7 percent annual equivalent in Mar-Jun 2018. China’s consumer prices increased at annual equivalent 7.0 percent in Jul-Sep 2018. The consumer price index of China increased at annual equivalent 2.4 percent in Oct 2018. China’s consumer prices fell at annual equivalent 1.8 percent in Nov-Dec 2018. The consumer price index of China increased at annual equivalent 9.4 percent in Jan-Feb 2019. China’s consumer prices fell at annual equivalent 4.7 percent in Mar 2019. The consumer price index of China increased at annual equivalent 0.6 percent in Apr-May 2019. China’s consumer prices fell at annual equivalent 1.2 percent in Jun 2019. The consumer price index of China increased at annual equivalent 8.3 percent in Jul-Aug 2019. China’s consumer prices increased at annual equivalent 9.2 percent in Sep-Nov 2019. The consumer price index of China changed at 0.0 percent in Dec 2019. China’s consumer prices increased at annual equivalent 14.0 percent in Jan-Feb 2020. The consumer price index of China decreased at annual equivalent 11.9 percent in Mar-Apr 2020. The euro zone harmonized index of consumer prices (HICP) increased at annual equivalent 4.9 percent in Jan-Apr 2011, minus 2.4 percent in May-Jul 2011, 4.3 percent in Aug-Nov 2011, minus 3.0 percent in Dec 2011-Jan 2012 and then 9.6 percent in Feb-Apr 2012, falling to minus 2.8 percent annual equivalent in May-Jul 2012 but resuscitating at 5.3 percent in Aug-Oct 2012. The shock of risk aversion forced minus 2.4 percent annual equivalent in Nov 2012. As in several European countries, annual equivalent inflation jumped to 4.9 percent in the euro area in Dec 2012. The HICP price index fell at annual equivalent 11.4 percent in Jan 2013 and increased at 10.0 percent in Feb-Mar 2013. Prices in the euro zone fell at 1.2 percent in Apr 2013 and increased at 1.2 percent in May-Jun 2013. Inflation in the euro zone fell at annual equivalent 5.8 percent in Jul 2013. Inflation returned in the euro zone at annual equivalent 3.7 percent in Aug-Sep 2013. Euro zone inflation fell at the annual equivalent rate of 2.4 percent in Oct-Nov 2013. Euro zone inflation jumped at 4.9 percent annual equivalent in Dec 2013 as in many countries worldwide. Inflation in the euro zone fell at annual equivalent 12.4 percent in Dec 2013 and increased at annual equivalent 5.3 percent in Feb-Apr 2014. Inflation in the euro zone fell at 1.2 percent in May 2014 and increased at 1.2 percent in Jun 2014. Inflation in the euro area fell at annual equivalent 7.0 percent in Jul 2014 and increased at 3.0 percent in Aug-Sep 2014. Consumer prices of the euro zone fell at annual equivalent 5.6 percent in Oct 2014-Jan 2015. Consumer prices in the euro area increased at annual equivalent 7.8 percent in Feb-May 2015 and changed 0.0 percent in Jun 2015. Consumer prices in the euro zone fell at annual equivalent 3.5 percent in Jul-Aug 2015 and increased at the annual equivalent rate of 1.8 percent in Sep-Oct 2015. Consumer prices in the euro zone fell at 2.4 percent annual equivalent in Nov-Dec 2015. The consumer price index of the euro area fell at 16.6 percent annual equivalent in Jan 2016 and increased at 8.7 percent in Feb-Mar 2016. The consumer price index of the euro zone changed at 2.4 percent in Apr 2016 and increased at 3.7 percent in May-Jun 2016. Euro-zone consumer prices fell at annual equivalent 5.8 percent in Jul 2016. Consumer prices of the euro-zone increased at annual equivalent 1.2 percent in Aug 2016. Euro-zone consumer prices increased at annual equivalent 3.7 percent in Sep-Oct 2016 and fell at 4.7 percent annual equivalent in Nov 2016. Prices of consumer goods in the euro zone increased at 6.2 percent annual equivalent in Dec 2016. The euro zone price index fell at 10.3 percent annual equivalent in Jan 2017 and increased at 7.4 percent annual equivalent in Feb-Apr 2017. Euro zone consumer prices fell at annual equivalent 2.0 percent in May-Jul 2017. The euro zone price index increased at 4.3 percent annual equivalent in Aug-Sep 2017. Euro zone consumer prices decreased at annual equivalent 1.2 percent in Oct-Nov 2017. The euro zone consumer price index increased at annual equivalent 3.7 percent in Dec 2017. Euro zone consumer prices fell at annual equivalent 10.3 percent in Jan 2018. The euro zone consumer price index increased at annual equivalent 7.1 percent in Feb-May 2018. Euro zone consumer prices increased at annual equivalent 1.2 percent in Jun 2018. The euro zone consumer price index decreased at annual equivalent 2.4 percent in Jul 2018. Euro zone consumer prices increased at annual equivalent 3.2 percent in Aug-Oct 2018. The euro zone consumer price index fell at annual equivalent 6.2 percent in Nov-2018-Jan 2019. Euro zone consumer prices increased at annual equivalent 8.3 percent in Feb-Apr 2019. The euro zone consumer price index increased at annual equivalent 1.8 percent in May-Jun 2019. Euro zone consumer prices fell at annual equivalent 5.8 percent in Jul 2019. The euro zone consumer price index increased at annual equivalent 1.6 percent in Aug-Oct 2019. Euro zone consumer prices decreased at annual equivalent 3.5 percent in Nov 2019. The euro zone consumer price index increased at annual equivalent 3.7 percent in Dec 2019. Euro zone consumer prices fell at annual equivalent 11.4 percent in Jan 2020. The euro one consumer price index increased at annual equivalent 4.1 percent in Feb-Apr 2020. The price indexes of the largest members of the euro zone, Germany, France and Italy, and the euro zone as a whole, exhibit the same inflation waves. The United Kingdom CPI increased at annual equivalent 6.5 percent in Jan-Apr 2011, falling to only 0.4 percent in May-Jul 2011 and then increasing at 4.6 percent in Aug-Nov 2011. UK consumer prices fell at 0.6 percent annual equivalent in Dec 2011 to Jan 2012 but increased at 6.2 percent annual equivalent from Feb to Apr 2012. In May-Jun 2012, with renewed risk aversion, UK consumer prices fell at the annual equivalent rate of minus 3.0 percent. Inflation returned in the UK at average annual equivalent of 4.5 percent in Jul-Dec 2012 with inflation in Oct 2012 caused mostly by increases of university tuition fees. Inflation returned at 4.5 percent annual equivalent in Jul-Dec 2012 and was higher in annual equivalent inflation of producer prices in the UK in Jul-Oct 2012 at 3.0 percent for output prices and 23.9 percent for input prices in Aug 2012 (see Table IA-1). Consumer prices in the UK fell at annual equivalent 5.8 percent in Jan 2013. Inflation returned in the UK with annual equivalent 4.3 percent in Feb-May 2013 and fell at 1.2 percent in Jun-Jul 2013. UK annual equivalent inflation returned at 3.4 percent in Aug-Dec 2013. CPI inflation fell at annual equivalent 7.0 percent in Jan 2014. Consumer price inflation in the UK returned at annual equivalent 4.5 percent in Feb-Apr 2014. UK consumer prices fell at annual equivalent 1.2 percent in May 2014 and increased at 2.4 percent in Jun 2014. UK consumer prices fell at annual equivalent 3.5 percent in Jul 2014 and increased at 2.0 percent in Aug-Oct 2014. UK consumer prices fell at annual equivalent 4.7 percent in Nov 2014-Jan 2015. UK consumer prices increased at 2.7 percent annual equivalent in Feb-May 2015 and decreased at 1.2 percent in Jun-Jul 2015. UK consumer prices increased at 2.4 percent annual equivalent in Aug 2015 and fell at annual equivalent 1.2 percent in Sep 2015. UK consumer prices increased at annual equivalent 0.8 percent in Oct-Dec 2015. UK consumer prices fell at 9.2 percent in Jan 2016 and increased at annual equivalent 2.8 percent in Feb-Apr 2016. The consumer price index of the UK increased at 2.4 percent annual equivalent in May-Jun 2016 and fell at annual equivalent 1.2 percent in Jul 2016. UK consumer prices increased at annual equivalent 2.4 percent in Aug-Nov 2016. Consumer prices in the UK increased at 6.2 percent annual equivalent in Dec 2016 and fell at 5.8 percent in Jan 2017. UK consumer prices increased at 6.8 percent in Feb-Mar 2017. Consumer prices increased at 4.9 percent annual equivalent in Apr-May 2017. UK consumer prices changed at minus 0.6 percent annual equivalent in Jun-Jul 2017. Consumer prices in the UK increased at annual equivalent 5.5 percent in Aug-Sep 2017. Consumer prices in the UK increased at annual equivalent 1.2 percent in Oct 2017. UK consumer prices increased at annual equivalent 4.3 percent in Nov-Dec 2017. Consumer prices in the UK decreased at annual equivalent 5.8 percent in Jan 2018. UK consumer prices increased at annual equivalent 3.0 percent in Feb-Mar 2018. Consumer prices increased at annual equivalent 4.9 percent in Apr-May 2018. UK consumer prices changed at annual equivalent 0.0 percent in Jun-Jul 2018. Consumer prices in the UK increased at annual equivalent 8.7 percent in Aug 2018. UK consumer prices increased at annual equivalent 1.2 percent in Sep-Oct 2018. Consumer prices in the UK increased at 2.4 percent in Nov-Dec 2018. UK consumer prices decreased at annual equivalent 9.2 percent in Jan 2019. UK consumer prices increased at annual equivalent 4.9 percent in Feb-May 2019. Consumer prices in the UK changed at annual equivalent 0.0 percent in Jun-Jul 2019. UK consumer prices increased at annual equivalent 3.0 percent in Aug-Sep 2019. Consumer prices in the UK decreased at annual equivalent 2.4 percent in Oct 2019. UK consumer prices increased at annual equivalent 1.2 percent in Nov-Dec 2019. Consumer prices in the UK decreased at annual equivalent 3.5 percent in Jan 2020. UK consumer prices increased at annual equivalent 2.4 percent in Feb-Mar 2020. Consumer prices in the UK decreased at annual equivalent 2.4 percent in Apr 2020.

Table IA-2, Annual Equivalent Rates of Consumer Price Indexes

Index 2011-2020	AE ∆%
US Consumer Price Index
AE ∆% Mar-Apr 2020	-7.0
AE ∆% Jan-Feb 2020	1.2
AE ∆% Oct-Dec 2019	2.4
AE ∆% Aug-Sep 2019	1.2
AE ∆% Jul 2019	3.7
AE ∆% May-Jun 2019	1.2
AE ∆% Feb-Apr 2019	3.7
AE ∆% Nov 2018-Jan 2019	0.0
AE ∆% Oct 2018	2.4
AE ∆% Jun-Sep 2018	1.8
AE ∆% Apr-May 2018	3.0
AE ∆% Mar 2018	0.0
AE ∆% Dec 2017-Feb 2018	3.7
AE ∆% Oct-Nov 2017	2.4
AE ∆% Aug-Sep 2017	5.5
AE ∆% Jul 2017	1.2
AE ∆% May-Jun 2017	0.0
AE ∆% Apr 2017	1.2
AE ∆% Mar 2017	-1.2
AE ∆% Feb 2017	1.2
AE ∆% Jan 2017	4.9
AE ∆% Nov-Dec 2016	2.4
AE ∆% Sep-Oct 2016	2.4
AE ∆% Aug 2016	2.4
AE ∆% Jul 2016	0.0
AE ∆% May-Jun 2016	3.7
AE ∆% Mar-Apr 2016	3.7
AE ∆% Feb 2016	-1.2
AE ∆% Dec 2015-Jan 2016	-0.6
AE ∆% Oct-Nov 2015	1.2
AE ∆% Aug-Sep 2015	-1.2
AE ∆% Jul 2015	2.4
AE ∆% Feb-Jun 2015	3.2
AE ∆% Nov 2014-Jan 2015	-4.3
AE ∆% Sep-Oct 2014	0.0
AE ∆% Aug 2014	0.0
AE ∆% Apr-Jul 2014	1.8
AE ∆% Dec 2013-Mar 2014	2.4
AE ∆% Oct-Nov 2013	1.8
AE ∆% May-Sep 2013	1.4
AE ∆% Mar-Apr 2013	-3.0
AE ∆% Feb 2013	6.2
AE ∆% Nov 2012-Jan 2013	0.0
AE ∆% Aug-Oct 2012	5.7
AE ∆% May-Jul 2012	-1.2
AE ∆% Feb-Apr 2012	2.4
AE ∆% Dec 2011-Jan 2012	1.8
AE ∆% Oct-Nov 2011	1.8
AE ∆% Jul-Sep 2011	3.2
AE ∆% May-Jun 2011	1.8
AE ∆% Jan-Apr 2011	4.9
China Consumer Price Index
AE ∆% Mar-Apr 2020	-11.9
AE ∆% Jan-Feb 2020	14.0
AE ∆% Dec 2019	0.0
AE ∆% Sep-Nov 2019	9.2
AE ∆% Jul-Aug 2019	8.3
AE ∆% Jun 2019	-1.2
AE ∆% Apr-May 2019	0.6
AE ∆% Mar 2019	-4.7
AE ∆% Jan-Feb 2019	9.4
AE ∆% Nov-Dec 2018	-1.8
AE ∆% Oct 2018	2.4
AE ∆% Jul-Sep 2018	7.0
AE ∆% Mar-Jun 2018	-4.7
AE ∆% Jan-Feb 2018	11.3
AE ∆% Dec 2017	3.7
AE ∆% Nov 2017	0.0
AE ∆% Aug-Oct 2017	4.1
AE ∆% Jul 2017	1.2
AE ∆% May-Jun 2017	-1.8
AE ∆% Apr 2017	1.2
AE ∆% Feb-Mar 2017	-3.0
AE ∆% Jan 2017	12.7
AE ∆% Nov-Dec 2016	1.2
AE ∆% Oct 2016	-1.2
AE ∆% Sep 2016	8.7
AE ∆% Jul-Aug 2016	1.8
AE ∆% Mar-Jun 2016	-3.5
AE ∆% Feb 2016	21.0
AE ∆% Nov 2015-Jan 2016	4.1
AE ∆% Oct 2015	-3.5
AE ∆% Sep 2015	1.2
AE ∆% Jul-Aug 2015	4.9
AE ∆% Mar-Jun 2015	-2.7
AE ∆% Dec 2014-Feb 2015	7.4
AE ∆% Nov 2014	-2.4
AE ∆% Jul-Oct 2014	2.4
AE ∆% Jun 2014	-1.2
AE ∆% May 2014	1.2
AE ∆% Mar-Apr 2014	-4.7
AE ∆% Dec 2013-Feb 2014	7.4
AE ∆% Nov 2013	-1.2
AE ∆% Jul-Oct 2013	4.6
AE ∆% May-Jun 2013	-3.5
AE ∆% Apr 2013	2.4
AE ∆% Mar 2013	-10.3
AE ∆% Dec 2012-Feb 2013	12.2
AE ∆% Oct-Nov 2012	0.0
AE ∆% Jul-Sep 2012	4.1
AE ∆% Apr-Jun 2012	-3.9
AE ∆% Dec 2011-Mar 2012	5.8
AE ∆% Jul-Nov 2011	2.9
AE ∆% Apr-Jun	2.0
AE ∆% Jan-Mar 2011	8.3
Euro Zone Harmonized Index of Consumer Prices
AE ∆% Feb-Apr 2020	4.1
AE ∆% Jan 2020	-11.4
AE ∆% Dec 2019	3.7
AE ∆% Nov 2019	-3.5
AE ∆% Aug-Oct 2019	1.6
AE ∆% Jul 2019	-5.8
AE ∆% May-Jun 2019	1.8
AE ∆% Feb-Apr 2019	8.3
AE ∆% Nov 2018-Jan 2019	-6.2
AE ∆% Aug-Oct 2018	3.2
AE ∆% Jul 2018	-2.4
AE ∆% Jun 2018	1.2
AE ∆% Feb-May 2018	7.1
AE ∆% Jan 2018	-10.3
AE ∆% Dec 2017	3.7
AE ∆% Oct-Nov 2017	-1.2
AE ∆% Aug-Sep 2017	4.3
AE ∆% May-Jul 2017	-2.0
AE ∆% Feb-Apr 2017	7.4
AE ∆% Jan 2017	-10.3
AE ∆% Dec 2016	6.2
AE ∆% Nov 2016	-4.7
AE ∆% Sep-Oct 2016	3.7
AE ∆% Aug 2016	1.2
AE ∆% Jul 2016	-5.8
AE ∆% May-Jun 2016	3.7
AE ∆% Apr 2016	2.4
AE ∆% Feb-Mar 2016	8.7
AE ∆% Jan 2016	-16.6
AE ∆% Nov-Dec 2015	-2.4
AE ∆% Sep-Oct 2015	1.8
AE ∆% Jul-Aug 2015	-3.5
AE ∆% Jun 2015	0.0
AE ∆% Feb-May 2015	7.8
AE ∆% Oct 2014-Jan 2015	-5.6
AE ∆% Aug-Sep 2014	3.0
AE ∆% Jul 2014	-7.0
AE ∆% Jun 2014	1.2
AE ∆% May 2014	-1.2
AE ∆% Feb-Apr 2014	5.3
AE ∆% Jan 2014	-12.4
AE ∆% Dec 2013	4.9
AE ∆% Oct-Nov 2013	-2.4
AE ∆% Aug-Sep 2013	3.7
AE ∆% Jul 2013	-5.8
AE ∆% May-Jun 2013	1.2
AE ∆% Apr 2013	-1.2
AE ∆% Feb-Mar 2013	10.0
AE ∆% Jan 2013	-11.4
AE ∆% Dec 2012	4.9
AE ∆% Nov 2012	-2.4
AE ∆% Aug-Oct 2012	5.3
AE ∆% May-Jul 2012	-2.8
AE ∆% Feb-Apr 2012	9.6
AE ∆% Dec 2011-Jan 2012	-3.0
AE ∆% Aug-Nov 2011	4.3
AE ∆% May-Jul 2011	-2.4
AE ∆% Jan-Apr 2011	4.9
Germany Consumer Price Index
AE ∆% Oct-Dec 2018	1.6 NSA 0.8 SA
AE ∆% Aug-Sep 2018	3.0 NSA 3.0 SA
AE ∆% May-Jul 2018	3.7 NSA 2.8 SA
AE ∆% Apr 2018	0.0 NSA 2.4 SA
AE ∆% Feb-Mar 2018	5.5 NSA 1.8 SA
AE ∆% Jan 2018	-8.1 NSA 1.2 SA
AE ∆% Nov-Dec 2017	5.5 NSA 3.0 SA
AE ∆% Aug-Oct 2017	0.8 NSA 1.6 SA
AE ∆% Jun-Jul 2017	3.7 NSA 2.4 SA
AE ∆% May 2017	-2.4 NSA -1.2 SA
AE ∆% Apr 2017	0.0 NSA 2.4 SA
AE ∆% Feb-Mar 2017	4.9 NSA 0.6 SA
AE ∆% Jan 2017	-7.0 NSA 2.4 SA
AE ∆% Dec 2016	8.7 NSA 4.9 SA
AE ∆% Sep-Nov 2016	1.6 NSA 2.0 SA
AE ∆% Aug 2016	0.0 NSA 1.2 SA
AE ∆% May-Jul 2016	2.8 NSA 1.6 SA
AE ∆% Apr 2016	-4.7 NSA -1.2 SA
AE ∆% Feb-Mar 2016	7.4 NSA 1.2 SA
AE ∆% Dec 2015-Jan 2016	-5.3 NSA -1.2 SA
AE ∆% Nov 2015	1.2 NSA 1.2 SA
AE ∆% Oct 2015	0.0 NSA 1.2 SA
AE ∆% Sep 2015	-2.4 NSA -1.2 SA
AE ∆% Jul-Aug 2015	1.2 NSA 0.0 SA
AE ∆% Jun 2015	-1.2 NSA -1.2 SA
AE ∆% Feb-May 2015	4.6 NSA 1.2 SA
AE ∆% Jan 2015	-11.4 NSA -1.2 SA
AE ∆% Aug-Dec 2014	-0.7 NSA 0.0 SA
AE ∆% Jun-Jul 2014	3.7 NSA 1.2 SA
AE ∆% Apr-May 2014	-1.8 NSA 0.0 SA
AE ∆% Feb-Mar 2014	4.9 NSA 0.0 SA
AE ∆% Jan 2014	-7.0 NSA 2.4 SA
AE ∆% Nov-Dec 2013	3.7 NSA 2.4 SA
AE ∆% Oct 2013	-2.4 NSA 1.2 SA
AE ∆% Aug-Sep 2013	0.0 NSA 0.6 SA
AE ∆% May-Jul 2013	4.1 NSA 2.4 SA
AE ∆% Apr 2013	-5.8 NSA 0.0 SA
AE ∆% Feb-Mar 2013	6.8 NSA 1.2 SA
AE ∆% Jan 2013	-5.8 NSA 1.2 SA
AE ∆% Sep-Dec 2012	1.5 NSA 1.5 SA
AE ∆% Jul-Aug 2012	4.9 NSA 3.0 SA
AE ∆% May-Jun 2012	-1.2 NSA 0.6 SA
AE ∆% Feb-Apr 2012	4.5 NSA 2.4 SA
AE ∆% Dec 2011-Jan 2012	0.6 NSA 1.8 SA
AE ∆% Jul-Nov 2011	1.7 NSA 1.9 SA
AE ∆% May-Jun 2011	0.6 NSA 3.0 SA
AE ∆% Jan-Apr 2011	3.0 NSA 2.4 SA
France Consumer Price Index
AE ∆% Mar-Apr 2020	0.6
AE ∆% Jan-Feb 2020	-2.4
AE ∆% Nov-Dec 2019	3.0
AE ∆% Sep-Oct 2019	-1.8
AE ∆% Aug 2019	6.2
AE ∆% Jul 2019	-2.4
AE ∆% May-Jun 2019	1.8
AE ∆% Feb-Apr 2019	4.9
AE ∆% Nov 2018-Jan 2019	-2.4
AE ∆% Oct 2018	1.2
AE ∆% Sep 2018	-2.4
AE ∆% Aug 2018	6.2
AE ∆% Jun-Jul 2018	-0.6
AE ∆% Mar-May 2018	6.6
AE ∆% Jan-Feb 2018	-0.6
AE ∆% Oct-Dec 2017	2.0
AE ∆% Sep 2017	-2.4
AE ∆% Aug 2017	6.2
AE ∆% Jul 2017	-4.7
AE ∆% Apr-Jun 2017	0.4
AE ∆% Feb-Mar 2017	4.3
AE ∆% Jan 2017	-3.5
AE ∆% Dec 2016	3.7
AE ∆% Oct-Nov 2016	0.0
AE ∆% Sep 2016	-2.4
AE ∆% Aug 2016	3.7
AE ∆% Jul 2016	-4.7
AE ∆% Jun 2016	1.2
AE ∆% Feb-May 2016	4.6
AE ∆% Jan 2016	-11.4
AE ∆% Dec 2015	2.4
AE ∆% Nov 2015	-2.4
AE ∆% Oct 2015	1.2
AE ∆% Sep 2015	-4.7
AE ∆% Aug 2015	3.7
AE ∆% Jun-Jul 2015	-3.0
AE ∆% Feb-May 2015	5.2
AE ∆% Jan 2015	-11.4
AE ∆% Dec 2014	1.2
AE ∆% Sep-Nov 2014	-2.4
AE ∆% Aug 2014	4.9
AE ∆% Jul 2014	-3.5
AE ∆% Apr-Jun 2014	0.0
AE ∆% Feb-Mar 2014	6.8
AE ∆% Jan 2014	-7.0
AE ∆% Dec 2013	3.7
AE ∆% Sep-Nov 2013	-1.6
AE ∆% Aug 2013	6.2
AE ∆% Jul 2013	-3.5
AE ∆% May-Jun 2013	1.8
AE ∆% Apr 2013	-2.4
AE ∆% Feb-Mar 2013	6.8
AE ∆% Nov 2012-Jan 2013	-1.6
AE ∆% Aug-Oct 2012	2.8
AE ∆% May-Jul 2012	-2.4
AE ∆% Feb-Apr 2012	5.3
AE ∆% Dec 2011-Jan 2012	0.0
AE ∆% Aug-Nov 2011	2.7
AE ∆% May-Jul 2011	-1.2
AE ∆% Jan-Apr 2011	4.0
Italy Consumer Price Index
AE ∆% Mar-Apr 2020	1.2
AE ∆% Feb 2020	-1.2
AE ∆% Dec 2019-Jan 2020	1.8
AE ∆% Sep-Nov 2019	-3.5
AE ∆% Aug 2019	4.9
AE ∆% May-Jul 2019	0.4
AE ∆% Mar-Apr 2019	3.0
AE ∆% Jan-Feb 2019	1.2
AE ∆% Nov-Dec 2018	-1.8
AE ∆% Sep-Oct 2018	-3.0
AE ∆% May-Aug 2018	3.7
AE ∆% Feb-Apr 2018	1.6
AE ∆% Dec 2017-Jan 2018	4.3
AE ∆% Sep-Nov 2017	-2.8
AE ∆% Jul-Aug 2017	2.4
AE ∆% May-Jun 2017	-1.8
AE ∆% Apr 2017	4.9
AE ∆% Mar 2017	0.0
AE ∆% Dec 2016-Feb 2017	4.5
AE ∆% Sep-Nov 2016	-1.6
AE ∆% Jul-Aug 2016	2.4
AE ∆% May-Jun 2016	2.4
AE ∆% Apr 2016	-1.2
AE ∆% Mar 2016	2.4
AE ∆% Jan-Feb 2016	-2.4
AE ∆% Nov-Dec 2015	-2.4
AE ∆% Oct 2015	2.4
AE ∆% Sep 2015	-4.7
AE ∆% Aug 2015	2.4
AE ∆% Jul 2015	-1.2
AE ∆% Feb-Jun 2015	2.4
AE ∆% Nov 2014-Jan 2015	-2.4
AE ∆% Oct 2014	1.2
AE ∆% Sep 2014	-4.7
AE ∆% Aug 2014	2.4
AE ∆% Jul 2014	-1.2
AE ∆% Jun 2014	1.2
AE ∆% May 2014	-1.2
AE ∆% Mar-Apr 2014	1.8
AE ∆% Feb 2014	-1.2
AE ∆% Dec 2013-Jan 2014	2.4
AE ∆% Sep-Nov 2013	-3.2
AE ∆% Dec 2012-Aug 2013	2.0
AE ∆% Sep-Nov 2012	-0.8
AE ∆% Jul-Aug 2012	3.0
AE ∆% May-Jun 2012	1.2
AE ∆% Feb-Apr 2012	5.7
AE ∆% Dec 2011-Jan 2012	4.3
AE ∆% Oct-Nov 2011	3.0
AE ∆% Jul-Sep 2011	2.4
AE ∆% May-Jun 2011	1.2
AE ∆% Jan-Apr 2011	4.9
UK Consumer Price Index
∆% Apr 2020	-2.4
∆% Feb-Mar 2020	2.4
∆% Jan 2020	-3.5
∆% Nov-Dec 2019	1.2
∆% Oct 2019	-2.4
∆% Aug-Sep 2019	3.0
∆% Jun-Jul 2019	0.0
∆% Feb-May 2019	4.9
∆% Jan 2019	-9.2
∆% Nov-Dec 2018	2.4
∆% Sep-Oct 2018	1.2
∆% Aug 2018	8.7
∆% Jun-Jul 2018	0.0
∆% Apr-May 2018	4.9
∆% Feb-Mar 2018	3.0
∆% Jan 2018	-5.8
∆% Nov-Dec 2017	4.3
∆% Oct 2017	1.2
∆% Aug-Sep 2017	5.5
∆% Jun-Jul 2017	-0.6
∆% Apr-May 2017	4.9
∆% Feb-Mar 2017	6.8
∆% Jan 2017	-5.8
∆% Dec 2016	6.2
∆% Aug-Nov 2016	2.4
∆% Jul 2016	-1.2
∆% May-Jun 2016	2.4
∆% Feb-Apr 2016	2.8
∆% Jan 2016	-9.2
∆% Oct-Dec 2015	0.8
∆% Sep 2015	-1.2
∆% Aug 2015	2.4
∆% Jun-Jul 2015	-1.2
∆% Feb-May 2015	2.7
AE ∆% Nov 2014-Jan 2015	-4.7
AE ∆% Aug-Oct 2014	2.0
AE ∆% Jul 2014	-3.5
AE ∆% Jun 2014	2.4
AE ∆% May 2014	-1.2
AE ∆% Feb-Apr	4.5
AE ∆% Jan 2014	-7.0
AE ∆% Aug-Dec 2013	3.4
AE ∆% Jun-Jul 2013	-1.2
AE ∆% Feb-May 2013	4.3
AE ∆% Jan 2013	-5.8
AE ∆% Jul-Dec 2012	4.5
AE ∆% May-Jun 2012	-3.0
AE ∆% Feb-Apr 2012	6.2
AE ∆% Dec 2011-Jan 2012	-0.6
AE ∆% Aug-Nov 2011	4.6
AE ∆% May-Jul 2011	0.4
AE ∆% Jan-Apr 2011	6.5

AE: Annual Equivalent

Sources: https://www.bls.gov/cpi/data.htm https://www.boj.or.jp/en/index.htm/

http://www.stats.gov.cn/english/PressRelease/ https://ec.europa.eu/eurostat/data/database

https://www.destatis.de/EN/Home/_node.html

https://www.insee.fr/en/accueil

https://www.istat.it/en/

https://www.ons.gov.uk/

IC United States Inflation. C Long-Term US Inflation. Key percentage average yearly rates of the US economy on growth and inflation are provided in Table I-1 updated with release of new data. The choice of dates prevents the measurement of long-term potential economic growth because of two recessions from IQ2001 (Mar) to IVQ2001 (Nov) with decline of GDP of 0.3 percent and the drop in GDP of 4.0 percent in the recession from IVQ2007 (Dec) to IIQ2009 (June) (https://cmpassocregulationblog.blogspot.com/2020/05/mediocre-cyclical-united-states.html and earlier https://cmpassocregulationblog.blogspot.com/2020/03/weekly-rise-of-valuations-of-risk.html). Long-term economic performance in the United States consisted of trend growth of GDP at 3 percent per year and of per capita GDP at 2 percent per year as measured for 1870 to 2010 by Robert E Lucas (2011May). The economy returned to trend growth after adverse events such as wars and recessions. The key characteristic of adversities such as recessions was much higher rates of growth in expansion periods that permitted the economy to recover output, income and employment losses that occurred during the contractions. Over the business cycle, the economy compensated the losses of contractions with higher growth in expansions to maintain trend growth of GDP of 3 percent and of GDP per capita of 2 percent. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Key percentage average yearly rates of the US economy on growth and inflation are provided in Table I-1 updated with release of new data. US economic growth has been at only 2.1 percent on average in the cyclical expansion in the 43 quarters from IIIQ2009 to IQ2020. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the first estimate of GDP for IQ2020 (https://www.bea.gov/system/files/2020-04/gdp1q20_adv.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.8 percent obtained by dividing GDP of $15,557.3 billion in IIQ2010 by GDP of $15,134.1 billion in IIQ2009 {[($15,557.3/$15,134.1) -1]100 = 2.8%], or accumulating the quarter on quarter growth rates (https://cmpassocregulationblog.blogspot.com/2020/05/mediocre-cyclical-united-states.html and earlier https://cmpassocregulationblog.blogspot.com/2020/03/weekly-rise-of-valuations-of-risk.html). The expansion from IQ1983 to IQ1986 was at the average annual growth rate of 5.7 percent, 5.3 percent from IQ1983 to IIIQ1986, 5.1 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983 to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 4.9 percent from IQ1983 to IIIQ1987, 5.0 percent from IQ1983 to IVQ1987, 4.9 percent from IQ1983 to IIQ1988, 4.8 percent from IQ1983 to IIIQ1988, 4.8 percent from IQ1983 to IVQ1988, 4.8 percent from IQ1983 to IQ1989, 4.7 percent from IQ1983 to IIQ1989, 4.6 percent from IQ1983 to IIIQ1989, 4.5 percent from IQ1983 to IVQ1989. 4.5 percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990, 4.3 percent from IQ1983 to IIIQ1990, 4.0 percent from IQ1983 to IVQ1990, 3.8 percent from IQ1983 to IQ1991, 3.8 percent from IQ1983 to IIQ1991, 3.8 percent from IQ1983 to IIIQ1991, 3.7 percent from IQ1983 to IVQ1991, 3.7 percent from IQ1983 to IQ1992, 3.7 percent from IQ1983 to IIQ1992, 3.7 percent from IQ1983 to IIIQ2019, 3.8 percent from IQ1983 to IVQ1992, 3.7 percent from IQ1983 to IQ1993, 3.6 percent from IQ1983 to IIQ1993, 3.6 percent from IQ1983 to IIIQ1993 and at 7.9 percent from IQ1983 to IVQ1983 (https://cmpassocregulationblog.blogspot.com/2020/05/mediocre-cyclical-united-states.html and earlier https://cmpassocregulationblog.blogspot.com/2020/03/weekly-rise-of-valuations-of-risk.html). The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (https://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (https://apps.bea.gov/iTable/index_nipa.cfm). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IQ2020 and the lockdown of economic activity in COVID-19 would have accumulated to 43.6 percent. GDP in IQ2020 would be $22,634.2 billion (in constant dollars of 2012) if the US had grown at trend, which is higher by $3646.3 billion than actual $18,987.9 billion. There are more than three trillion dollars of GDP less than at trend, explaining the 51.6 million unemployed or underemployed equivalent to actual unemployment/underemployment of 30.0 percent of the effective labor force with the largest part originating in the lockdown of economic activity in the COVID-19 event (https://cmpassocregulationblog.blogspot.com/2020/05/fifty-two-million-unemployed-or.html and earlier https://cmpassocregulationblog.blogspot.com/2020/04/lockdown-of-economic-activity-in.html). Unemployment is increasing sharply while employment is declining rapidly because of the lockdown of economic activity in the probable global recession resulting from the COVID-19 event (https://www.bls.gov/cps/employment-situation-covid19-faq-april-2020.pdf). US GDP in IQ2020 is 16.1 percent lower than at trend. US GDP grew from $15,762.0 billion in IVQ2007 in constant dollars to $18,987.9 billion in IQ2020 or 20.5 percent at the average annual equivalent rate of 1.5 percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. Cochrane (2016May02) measures GDP growth in the US at average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per year from 2000 to 2015 with only at 2.0 percent annual equivalent in the current expansion. Cochrane (2016May02) proposes drastic changes in regulation and legal obstacles to private economic activity. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. There is similar behavior in manufacturing. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 2.9 percent per year from Apr 1919 to Apr 2020. Growth at 2.9 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 154.0798 in Apr 2020. The actual index NSA in Apr 2020 is 84.8550 which is 44.9 percent below trend. The deterioration of manufacturing in Apr 2020 originates in the lockdown of economic activity in the COVID-19 event. Manufacturing grew at the average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 161.6318 in Apr 2020. The actual index NSA in Apr 2020 is 84.8550, which is 47.5 percent below trend. Manufacturing output grew at average 1.3 percent between Dec 1986 and Apr 2020. Using trend growth of 1.3 percent per year, the index would increase to 127.0007 in Apr 2020. The output of manufacturing at 84.8550 in Apr 2020 is 33.2 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index decreased from 86.3800 in Apr 2009 to 85.8317 in Apr 2020 or minus 0.6 percent. The NAICS manufacturing index increased at the annual equivalent rate of 3.5 percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the NAICS manufacturing output index from 106.6777 in Dec 2007 to 163.0563 in Apr 2020. The NAICS index at 85.8317 in Apr 2020 is 47.4 below trend. The NAICS manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999 to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output index from 106.6777 in Dec 2007 to 131.3304 in Apr 2020. The NAICS index at 85.8317 in Apr 2020 is 34.6 percent below trend under this alternative calculation. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. In the period from 1929 to 2019, the average growth rate of real GDP was 3.2 percent and 3.2 percent between 1947 to 2019, which is close to 3.0 percent from 1870 to 2010 measured by Lucas (2011May), as shown in Table I-1. From 1929 to 2019, nominal GDP grew at the average rate of 6.1 percent and at 6.4 percent from 1947 to 2019. The implicit deflator increased at the average rate of 2.8 percent from 1929 to 2019 and at 3.1 percent from 1947 to 2019. Between 2000 and 2019, real GDP grew at the average rate of 2.0 percent per year, nominal GDP at 4.0 percent and the implicit deflator at 1.9 percent. The annual average rate of CPI increase was 3.1 percent from 1913 to 2019, 3.4 percent from 1947 to 2019 and 2.1 percent from 2000 to 2019. Between 2000 and 2019, the average rate of CPI inflation was 2.1 percent per year and 2.0 percent excluding food and energy. From 2000 to 2020, the average rate of CPI inflation was 2.0 percent and 1.9 percent excluding food and energy. The average annual rate of PPI inflation was 2.9 percent from 1947 to 2019 and 2.1 percent from 2000 to 2019. PPI inflation increased at 2.2 percent per year on average from 2000 to 2019, 1.8 percent on average from 2000 to 2020 and at 1.8 percent excluding food and energy from 2000 to 2019 and 1.8 percent from 2000 to 2020. Producer price inflation of finished energy goods increased at average 3.6 percent between 2000 and 2019 and at 1.7 percent between 2000 and 2020. There is also inflation in international trade. Import prices increased at 1.3 percent per year between 2000 and 2019 and at 0.9 percent between 2000 and 2020. The commodity price shock is revealed by inflation of import prices of fuels and lubricants increasing at 5.1 percent per year between 2000 and 2019 and at 0.6 percent between 2000 and 2020. The average percentage rates of increase of import prices excluding fuels are at 0.9 percent for 2002 to 2019 and 0.8 percent for 2002 to 2020. Export prices rose at the average rate of 1.4 percent between 2000 and 2019 and at 0.9 percent from 2000 to 2020. What spared the US of sharper decade-long deterioration of the terms of trade, (export prices)/(import prices), was its diversification and competitiveness in agriculture. Agricultural export prices grew at the average yearly rate of 3.4 percent from 2000 to 2019 and at 2.9 percent from 2000 to 2020. US nonagricultural export prices rose at 1.2 percent per year from 2000 to 2019 and at 0.7 percent from 2000 to 2020. The share of petroleum imports in US trade far exceeds that of agricultural exports. Unconventional monetary policy inducing carry trades in commodities has deteriorated US terms of trade, prices of exports relative to prices of imports, tending to restrict growth of US aggregate real income. These dynamic inflation rates are not similar to those for the economy of Japan where inflation was negative in seven of the 10 years in the 2000s. There is no reality of the proposition of need of unconventional monetary policy in the US because of deflation panic. There is reality in cyclical slow economic growth currently but not in secular stagnation.

Table I-1, US, Average Growth Rates of Real and Nominal GDP, Consumer Price Index, Producer Price Index and Import and Export Prices, Percent per Year

Real GDP	2000-2019: 2.0% 1929-2019: 3.2% 1947-2019: 3.2%
Nominal GDP	2000-2019: 4.0% 1929-2019: 6.1% 1947-2019: 6.4%
Implicit Price Deflator	2000-2019: 1.9% 1929-2019: 2.8% 1947-2019: 3.1%
CPI	2000-2019: 2.1% 2000-2020: 2.0% Annual 1913-2019: 3.1% 1947-2019: 3.4% 2000-2019: 2.1%
CPI ex Food and Energy	2000-2019: 2.0% 2000-2020: 1.9%
PPI	2000-2019: 2.2% 2000-2020: 1.8% Annual 1947-2019: 2.9% 2000-2019: 2.1%
PPI ex Food and Energy	2000-2019: 1.8% 2000-2020: 1.8%
PPI Finished Energy Goods	2000-2019: 3.6% 2000-2020: 1.7%
Import Prices	2000-2019: 1.3% 2000-2020: 0.9%
Import Prices Fuels and Lubricants	2000-2019: 5.1 2000-2020: 0.6
Import Prices Excluding Fuels	2002-2019: 0.9% 2002-2020: 0.8%
Export Prices	2000-2019: 1.4% 2000-2020: 0.9%
Agricultural Export Prices	2000-2019: 3.4% 2000-2020: 2.9%
Nonagricultural Export Prices	2000-2019: 1.2% 2000-2020: 0.7%

Note: rates for price indexes in the row beginning with “CPI” and ending in the row “Nonagricultural Export Prices” are for Apr 2000 to Apr 2019 and for Apr 2000 to Apr 2020.The series excluding fuels begins in 2002.

Sources: https://www.bea.gov/iTable/index_nipa.cfm https://www.bls.gov/ppi/ https://www.bls.gov/cpi/data.htm https://www.bls.gov/mxp/data.htm

ID Current US Inflation. Unconventional monetary policy of zero interest rates and large-scale purchases of long-term securities for the balance sheet of the central bank is proposed to prevent deflation. The data of CPI inflation of all goods and CPI inflation excluding food and energy for the past six decades does not show even one negative change, as shown in Table CPIEX.

Table CPIEX, Annual Percentage Changes of the CPI All Items Excluding Food and Energy

Year	Annual ∆%
1958	2.4
1959	2.0
1960	1.3
1961	1.3
1962	1.3
1963	1.3
1964	1.6
1965	1.2
1966	2.4
1967	3.6
1968	4.6
1969	5.8
1970	6.3
1971	4.7
1972	3.0
1973	3.6
1974	8.3
1975	9.1
1976	6.5
1977	6.3
1978	7.4
1979	9.8
1980	12.4
1981	10.4
1982	7.4
1983	4.0
1984	5.0
1985	4.3
1986	4.0
1987	4.1
1988	4.4
1989	4.5
1990	5.0
1991	4.9
1992	3.7
1993	3.3
1994	2.8
1995	3.0
1996	2.7
1997	2.4
1998	2.3
1999	2.1
2000	2.4
2001	2.6
2002	2.4
2003	1.4
2004	1.8
2005	2.2
2006	2.5
2007	2.3
2008	2.3
2009	1.7
2010	1.0
2011	1.7
2012	2.1
2013	1.8
2014	1.7
2015	1.8
2016	2.2
2017	1.8
2018	2.1
2019	2.2

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data

The history of producer price inflation in the past five decades does not provide evidence of deflation. The finished core PPI does not register even one single year of decline, as shown in Table PPIEX.

Table PPIEX, Annual Percentage Changes of the PPI Finished Goods Excluding Food and Energy

Year	Annual
1974	11.4
1975	11.4
1976	5.7
1977	6.0
1978	7.5
1979	8.9
1980	11.2
1981	8.6
1982	5.7
1983	3.0
1984	2.4
1985	2.5
1986	2.3
1987	2.4
1988	3.3
1989	4.4
1990	3.7
1991	3.6
1992	2.4
1993	1.2
1994	1.0
1995	2.1
1996	1.4
1997	0.3
1998	0.9
1999	1.7
2000	1.3
2001	1.4
2002	0.1
2003	0.2
2004	1.5
2005	2.4
2006	1.5
2007	1.9
2008	3.4
2009	2.6
2010	1.2
2011	2.4
2012	2.6
2013	1.5
2014	1.9
2015	2.0
2016	1.6
2017	1.8
2018	2.3
2019	2.2

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

Chart I-1 provides US nominal GDP from 1929 to 2019. The chart disguises the decline of nominal GDP during the 1930s from $104.6 billion in 1929 to $57.2 billion in 1933 or by 45.3 percent (data from the US Bureau of Economic Analysis at https://apps.bea.gov/iTable/index_nipa.cfm). The level of nominal GDP reached $102.9 billion in 1940 and exceeded the $104.6 billion of 1929 only with $129.3 billion in 1941. The only major visible bump in the chart occurred in the recession of IVQ2007 to IIQ2009 with revised cumulative decline of real GDP of 4.0 percent. US nominal GDP fell from $14,712.8 billion in 2008 to $14,448.9 billion in 2009 or by 1.8 percent. US nominal GDP rose to $14,992.1 billion in 2010 or by 3.8 percent and to $15,542.6 billion in 2011 for an additional 3.7 percent for cumulative increase of 7.6 percent relative to 2009 and to $16,197.0 billion in 2012 for an additional 4.2 percent and cumulative increase of 12.1 percent relative to 2009. US nominal GDP increased from $14,451.9 in 2007 to $21,427.7 billion in 2019 or by 48.3 percent at the average annual rate of 3.3 percent per year (https://apps.bea.gov/iTable/index_nipa.cfm). Tendency for deflation would be reflected in persistent bumps. In contrast, during the Great Depression in the four years of 1929 to 1933, GDP in constant dollars fell 26.3 percent cumulatively and fell 45.3 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7). The comparison of the global recession after 2007 with the Great Depression is entirely misleading (https://cmpassocregulationblog.blogspot.com/2020/05/mediocre-cyclical-united-states.html and earlier https://cmpassocregulationblog.blogspot.com/2020/03/weekly-rise-of-valuations-of-risk.html).

Chart I-1, US, Nominal GDP 1929-2019

Source: US Bureau of Economic Analysis

https://apps.bea.gov/iTable/index_nipa.cfm

Chart I-2 provides US real GDP from 1929 to 2019. The chart also disguises the Depression of the 1930s. In the four years of 1929 to 1933, GDP in constant dollars fell 26.3 percent cumulatively and fell 45.3 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7; data from the US Bureau of Economic Analysis at https://apps.bea.gov/iTable/index_nipa.cfm). Persistent deflation threatening real economic activity would also be reflected in the series of long-term growth of real GDP. There is no such behavior in Chart I-2 except for periodic recessions in the US economy that have occurred throughout history.

Chart I-2, US, Real GDP 1929-2019

Source: US Bureau of Economic Analysis

https://apps.bea.gov/iTable/index_nipa.cfm

Deflation would also be in evidence in long-term series of prices in the form of bumps. The GDP implicit deflator series in Chart I-3 from 1929 to 2019 shows sharp dynamic behavior over time. There is decline of the implicit price deflator of GDP by 25.8 percent from 1929 to 1933 (data from the US Bureau of Economic Analysis at https://apps.bea.gov/iTable/index_nipa.cfm. In contrast, the implicit price deflator of GDP of the US increased from 92.486 (2012 =100) in 2007 to 95.004 in 2009 or by 2.7 percent and increased to 112.345 in 2019 or by 18.3 percent relative to 2009 and 21.5 percent relative to 2007. The implicit price deflator of US GDP increased in every quarter from IVQ2007 to IVQ2012 with exception of decline from 94.986 in IVQ2008 to 94.938 in IIIQ2009 or by 0.1 percent (https://apps.bea.gov/iTable/index_nipa.cfm). Wars are characterized by rapidly rising prices followed by declines when peace is restored. The US economy is not plagued by deflation but by long-run inflation.

Chart I-3, US, GDP Implicit Price Deflator 1929-2019

Source: US Bureau of Economic Analysis

https://apps.bea.gov/iTable/index_nipa.cfm

Chart I-4 provides percent change from preceding quarter in prices of GDP at seasonally adjusted annual rates (SAAR) from 1980 to 2019. There is one case of negative change by 0.4 percent in IIQ2009 that was adjustment from 3.1 percent in IIIQ2008 following 1.8 percent in IQ2008 and 1.6 percent IIQ2008 caused by carry trades from policy interest rates being moved to zero into commodity futures. These positions were reversed because of the fear of toxic assets in banks in the proposal of TARP in late 2008 (Cochrane and Zingales 2009). Prices of GDP increased at 0.3 percent in IVQ2014. GDP prices changed at 0.0 percent in IQ2015, increasing at 2.4 percent in IIQ015 and at 1.2 percent in IIIQ2015. Prices of GDP changed at 0.0 percent in IVQ2015 and decreased at 0.2 percent in IQ2016. Prices of GDP changed at 2.6 percent in IIQ2016 and increased at 1.4 percent in IIIQ2016. Prices of GDP increased at 2.1 percent in IVQ2016 and increased at 1.9 percent in IQ2017. Prices of GDP increased at 1.3 percent in IIQ2017 and increased at 2.4 percent in IIIQ2017. Prices of GDP increased at 2.6 percent in IVQ2017 and increased at 2.3 percent in IQ2018. Prices of GDP increased at 3.2 percent in IIQ2018 and increased at 2.0 percent in IIIQ2018. Prices of GDP increased at 1.6 percent in IVQ2018 and increased at 1.1 percent in IQ2019. Prices of GDP increased at 2.4 percent in IIQ2019 and increased at 1.8 percent in IIIQ2019. Prices of GDP increased at 1.3 percent in IVQ2019 and increased at 1.3 percent in IQ2020. There has not been actual deflation or risk of deflation threatening depression in the US that would justify unconventional monetary policy.

Chart I-4, Percent Change from Preceding Period in Prices for GDP Seasonally Adjusted at Annual Rates 1980-2020

Source: US Bureau of Economic Analysis

https://apps.bea.gov/iTable/index_nipa.cfm

Chart I-5 provides percent change from preceding year in prices of GDP from 1929 to 2019. There are four consecutive years of declines of prices of GDP during the Great Depression: 3.9 percent in 1930, 9.9 percent in 1931, 11.4 percent in 1932 and 2.7 percent in 1933. There were two consecutive declines of 1.8 percent in 1938 and 1.3 percent in 1939. Prices of GDP changed 0.0 percent in 1949 after increasing 12.6 percent in 1946, 11.2 percent in 1947 and 5.7 percent in 1948, which is similar to experience with wars in other countries. There are no other negative changes of annual prices of GDP in 74 years from 1939 to 2019.

Chart I-5, Percent Change from Preceding Year in Prices for Gross Domestic Product 1930-2019

https://apps.bea.gov/iTable/index_nipa.cfm

The producer price index of the US from 1947 to 2020 in Chart I-6 shows various periods of more rapid or less rapid inflation but no bumps. The major event is the decline in 2008 when risk aversion because of the global recession caused the collapse of oil prices from $148/barrel to less than $80/barrel with most other commodity prices also collapsing. The event had nothing in common with explanations of deflation but rather with the concentration of risk exposures in commodities after the decline of stock market indexes. Eventually, there was a flight to government securities because of the fears of insolvency of banks caused by statements supporting proposals for withdrawal of toxic assets from bank balance sheets in the Troubled Asset Relief Program (TARP), as explained by Cochrane and Zingales (2009). The bump in 2008 with decline in 2009 is consistent with the view that zero interest rates with subdued risk aversion induce carry trades into commodity futures.

Chart I-6, US, Producer Price Index, Finished Goods, NSA, 1947-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

Chart I-7 provides 12-month percentage changes of the producer price index from 1948 to 2020. The distinguishing even in Chart I-7 is the Great Inflation of the 1970s. The shape of the two-hump Bactrian camel of the 1970’s resembles the double hump from 2007 to 2020.

Chart I-7, US, Producer Price Index, Finished Goods, 12-Month Percentage Change, NSA, 1948-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

Annual percentage changes of the producer price index from 1948 to 2019 are shown in Table I-1A. The producer price index fell 2.8 percent in 1949 following the adjustment to World War II and fell 0.6 percent in 1952 and 1.0 percent in 1953 around the Korean War. There are two other mild declines of 0.3 percent in 1959 and 0.3 percent in 1963. There are only few subsequent and isolated declines of the producer price index of 1.4 percent in 1986, 0.8 percent in 1998, 1.3 percent in 2002 and 2.6 percent in 2009. The decline of 2009 was caused by unwinding of carry trades in 2008 that had lifted oil prices to $140/barrel during deep global recession because of the panic of probable toxic assets in banks that would be removed with the Troubled Asset Relief Program (TARP) (Cochrane and Zingales 2009). Producer prices fell 3.2 percent in 2015 and declined 1.0 percent in 2016 during collapse of commodity prices form high prices induced by zero interest rates. Producer prices increased 3.2 percent in 2017 and increased 3.1 percent in 2018. Producer prices increased 0.8 percent in 2019. There is no evidence in this history of 66 years of the US producer price index suggesting that there is frequent and persistent deflation shock requiring aggressive unconventional monetary policy. The design of such anti-deflation policy could provoke price and financial instability because of lags in effect of monetary policy, model errors, inaccurate forecasts and misleading analysis of current economic conditions.

Table I-1A, US, Annual PPI Inflation ∆% 1948-2019

Year	Annual
1948	8.0
1949	-2.8
1950	1.8
1951	9.2
1952	-0.6
1953	-1.0
1954	0.3
1955	0.3
1956	2.6
1957	3.8
1958	2.2
1959	-0.3
1960	0.9
1961	0.0
1962	0.3
1963	-0.3
1964	0.3
1965	1.8
1966	3.2
1967	1.1
1968	2.8
1969	3.8
1970	3.4
1971	3.1
1972	3.2
1973	9.1
1974	15.4
1975	10.6
1976	4.5
1977	6.4
1978	7.9
1979	11.2
1980	13.4
1981	9.2
1982	4.1
1983	1.6
1984	2.1
1985	1.0
1986	-1.4
1987	2.1
1988	2.5
1989	5.2
1990	4.9
1991	2.1
1992	1.2
1993	1.2
1994	0.6
1995	1.9
1996	2.7
1997	0.4
1998	-0.8
1999	1.8
2000	3.8
2001	2.0
2002	-1.3
2003	3.2
2004	3.6
2005	4.8
2006	3.0
2007	3.9
2008	6.3
2009	-2.6
2010	4.2
2011	6.1
2012	1.9
2013	1.2
2014	1.9
2015	-3.2
2016	-1.0
2017	3.2
2018	3.1
2019	0.8

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

The producer price index excluding food and energy from 1973 to 2020, the first historical date of availability in the dataset of the Bureau of Labor Statistics (BLS), shows similarly dynamic behavior as the overall index, as shown in Chart I-8. There is no evidence of persistent deflation in the US PPI.

Chart I-8, US Producer Price Index, Finished Goods Excluding Food and Energy, NSA, 1973-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

Chart I-9 provides 12-month percentage rates of change of the finished goods index excluding food and energy. The dominating characteristic is the Great Inflation of the 1970s. The double hump illustrates how inflation may appear to be subdued and then returns with strength.

Chart I-9, US Producer Price Index, Finished Goods Excluding Food and Energy, 12-Month Percentage Change, NSA, 1974-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

The producer price index of energy goods from 1974 to 2020 is in Chart I-10. The first jump occurred during the Great Inflation of the 1970s analyzed in various comments of this blog (http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html) and in Appendix I. There is relative stability of producer prices after 1986 with another jump and decline in the late 1990s into the early 2000s. The episode of commodity price increases during a global recession in 2008 could only have occurred with interest rates dropping toward zero, which stimulated the carry trade from zero interest rates to leveraged positions in commodity futures. Commodity futures exposures were dropped in the flight to government securities after Sep 2008. Commodity future exposures were created again when risk aversion diminished around Mar 2010 after the finding that US bank balance sheets did not have the toxic assets that were mentioned in proposing TARP in Congress (see Cochrane and Zingales 2009). Fluctuations in commodity prices and other risk financial assets originate in carry trade when risk aversion ameliorates. There are also fluctuations originating in shifts in preference for asset classes such as between commodities and equities.

Chart I-10, US, Producer Price Index, Finished Energy Goods, NSA, 1974-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

Chart I-11 shows 12-month percentage changes of the producer price index of finished energy goods from 1975 to 2020. This index is only available after 1974 and captures only one of the humps of energy prices during the Great Inflation. Fluctuations in energy prices have occurred throughout history in the US but without provoking deflation. Two cases are the decline of oil prices in 2001 to 2002 that has been analyzed by Barsky and Kilian (2004) and the collapse of oil prices from over $140/barrel with shock of risk aversion to the carry trade in Sep 2008.

Chart I-11, US, Producer Price Index, Finished Energy Goods, 12-Month Percentage Change, NSA, 1974-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

Chart I-12 provides the consumer price index NSA from 1913 to 2020. The dominating characteristic is the increase in slope during the Great Inflation from the middle of the 1960s through the 1970s. There is long-term inflation in the US and no evidence of deflation risks.

Chart I-12, US, Consumer Price Index, NSA, 1913-2020

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

Chart I-13 provides 12-month percentage changes of the consumer price index from 1914 to 2020. The only episode of deflation after 1950 is in 2009, which is explained by the reversal of speculative commodity futures carry trades that were induced by interest rates driven to zero in a shock of monetary policy in 2008. The only persistent case of deflation is from 1930 to 1933, which has little if any relevance to the contemporary United States economy. There are actually three waves of inflation in the second half of the 1960s, in the mid-1970s and again in the late 1970s. Inflation rates then stabilized in a range with only two episodes above 5 percent.

Chart I-13, US, Consumer Price Index, All Items, 12- Month Percentage Change 1914-2020

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

Table I-2 provides annual percentage changes of United States consumer price inflation from 1914 to 2019. There have been only cases of annual declines of the CPI after wars:

World War I minus 10.5 percent in 1921 and minus 6.1 percent in 1922 following cumulative increases of 83.5 percent in four years from 1917 to 1920 at the average of 16.4 percent per year
World War II: minus 1.2 percent in 1949 following cumulative 33.9 percent in three years from 1946 to 1948 at average 10.2 percent per year
Minus 0.4 percent in 1955 two years after the end of the Korean War
Minus 0.4 percent in 2009.
The decline of 0.4 percent in 2009 followed increase of 3.8 percent in 2008 and is explained by the reversal of speculative carry trades into commodity futures that were created in 2008 as monetary policy rates were driven to zero. The reversal occurred after misleading statement on toxic assets in banks in the proposal for TARP (Cochrane and Zingales 2009).

There were declines of 1.7 percent in both 1927 and 1928 during the episode of revival of rules of the gold standard. The only persistent deflationary period since 1914 was during the Great Depression in the years from 1930 to 1933 and again in 1938-1939. Consumer prices increased only 0.1 percent in 2015 because of the collapse of commodity prices from artificially high levels induced by zero interest rates. Consumer prices increased 1.3 percent in 2016, increasing at 2.1 percent in 2017. Consumer prices increased 2.4 percent in 2018, increasing at 1.8 percent in 2019. Fear of deflation based on that experience does not justify unconventional monetary policy of zero interest rates that has failed to stop deflation in Japan. Financial repression causes far more adverse effects on allocation of resources by distorting the calculus of risk/returns than alleged employment-creating effects or there would not be current recovery without jobs and hiring after zero interest rates since Dec 2008 and intended now forever in a self-imposed forecast growth and employment mandate of monetary policy. Unconventional monetary policy drives wide swings in allocations of positions into risk financial assets that generate instability instead of intended pursuit of prosperity without inflation. There is insufficient knowledge and imperfect tools to maintain the gap of actual relative to potential output constantly at zero while restraining inflation in an open interval of (1.99, 2.0). Symmetric targets appear to have been abandoned in favor of a self-imposed single jobs mandate of easing monetary policy even with the economy growing at or close to potential output that is actually a target of growth forecast. The impact on the overall economy and the financial system of errors of policy are magnified by large-scale policy doses of trillions of dollars of quantitative easing and zero interest rates. The US economy has been experiencing financial repression as a result of negative real rates of interest during nearly a decade and programmed in monetary policy statements until 2015 or, for practical purposes, forever. The essential calculus of risk/return in capital budgeting and financial allocations has been distorted. If economic perspectives are doomed until 2015 such as to warrant zero interest rates and open-ended bond-buying by “printing” digital bank reserves (http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html; see Shultz et al 2012), rational investors and consumers will not invest and consume until just before interest rates are likely to increase. Monetary policy statements on intentions of zero interest rates for another three years or now virtually forever discourage investment and consumption or aggregate demand that can increase economic growth and generate more hiring and opportunities to increase wages and salaries. The doom scenario used to justify monetary policy accentuates adverse expectations on discounted future cash flows of potential economic projects that can revive the economy and create jobs. If it were possible to project the future with the central tendency of the monetary policy scenario and monetary policy tools do exist to reverse this adversity, why the tools have not worked before and even prevented the financial crisis? If there is such thing as “monetary policy science”, why it has such poor record and current inability to reverse production and employment adversity? There is no excuse of arguing that additional fiscal measures are needed because they were deployed simultaneously with similar ineffectiveness. Jon Hilsenrath, writing on “New view into Fed’s response to crisis,” on Feb 21, 2014, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303775504579396803024281322?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes 1865 pages of transcripts of eight formal and six emergency policy meetings at the Fed in 2008 (http://www.federalreserve.gov/monetarypolicy/fomchistorical2008.htm). If there were an infallible science of central banking, models and forecasts would provide accurate information to policymakers on the future course of the economy in advance. Such forewarning is essential to central bank science because of the long lag between the actual impulse of monetary policy and the actual full effects on income and prices many months and even years ahead (Romer and Romer 2004, Friedman 1961, 1953, Culbertson 1960, 1961, Batini and Nelson 2002). Jon Hilsenrath, writing on “New view into Fed’s response to crisis,” on Feb 21, 2014, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303775504579396803024281322?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzed 1865 pages of transcripts of eight formal and six emergency policy meetings at the Fed in 2008 (http://www.federalreserve.gov/monetarypolicy/fomchistorical2008.htm). Jon Hilsenrath demonstrates that Fed policymakers frequently did not understand the current state of the US economy in 2008 and much less the direction of income and prices. The conclusion of Friedman (1953) that monetary impulses increase financial and economic instability because of lags in anticipating needs of policy, taking policy decisions and effects of decisions. This a fortiori true when untested unconventional monetary policy in gargantuan doses shocks the economy and financial markets.

Table I-2, US, Annual CPI Inflation ∆% 1914-2019

Year	Annual ∆%
1914	1.0
1915	1.0
1916	7.9
1917	17.4
1918	18.0
1919	14.6
1920	15.6
1921	-10.5
1922	-6.1
1923	1.8
1924	0.0
1925	2.3
1926	1.1
1927	-1.7
1928	-1.7
1929	0.0
1930	-2.3
1931	-9.0
1932	-9.9
1933	-5.1
1934	3.1
1935	2.2
1936	1.5
1937	3.6
1938	-2.1
1939	-1.4
1940	0.7
1941	5.0
1942	10.9
1943	6.1
1944	1.7
1945	2.3
1946	8.3
1947	14.4
1948	8.1
1949	-1.2
1950	1.3
1951	7.9
1952	1.9
1953	0.8
1954	0.7
1955	-0.4
1956	1.5
1957	3.3
1958	2.8
1959	0.7
1960	1.7
1961	1.0
1962	1.0
1963	1.3
1964	1.3
1965	1.6
1966	2.9
1967	3.1
1968	4.2
1969	5.5
1970	5.7
1971	4.4
1972	3.2
1973	6.2
1974	11.0
1975	9.1
1976	5.8
1977	6.5
1978	7.6
1979	11.3
1980	13.5
1981	10.3
1982	6.2
1983	3.2
1984	4.3
1985	3.6
1986	1.9
1987	3.6
1988	4.1
1989	4.8
1990	5.4
1991	4.2
1992	3.0
1993	3.0
1994	2.6
1995	2.8
1996	3.0
1997	2.3
1998	1.6
1999	2.2
2000	3.4
2001	2.8
2002	1.6
2003	2.3
2004	2.7
2005	3.4
2006	3.2
2007	2.8
2008	3.8
2009	-0.4
2010	1.6
2011	3.2
2012	2.1
2013	1.5
2014	1.6
2015	0.1
2016	1.3
2017	2.1
2018	2.4
2019	1.8

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

Chart I-14 provides the consumer price index excluding food and energy from 1957 to 2020. There is long-term inflation in the US without episodes of persistent deflation.

Chart I-14, US, Consumer Price Index Excluding Food and Energy, NSA, 1957-2020

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

Chart I-15 provides 12-month percentage changes of the consumer price index excluding food and energy from 1958 to 2020. There are three waves of inflation in the 1970s during the Great Inflation. There is no episode of deflation.

Chart I-15, US, Consumer Price Index Excluding Food and Energy, 12-Month Percentage Change, NSA, 1958-2020

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

The consumer price index of housing is in Chart I-16. There was also acceleration during the Great Inflation of the 1970s. The index flattens after the global recession in IVQ2007 to IIQ2009. Housing prices collapsed under the weight of construction of several times more housing than needed. Surplus housing originated in subsidies and artificially low interest rates in the shock of unconventional monetary policy in 2003 to 2004 in fear of deflation.

Chart I-16, US, Consumer Price Index Housing, NSA, 1967-2020

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

Chart I-17 provides 12-month percentage changes of the housing CPI. The Great Inflation also had extremely high rates of housing inflation. Housing is considered as potential hedge of inflation.

Chart I-17, US, Consumer Price Index, Housing, 12- Month Percentage Change, NSA, 1968-2020

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

ID Current US Inflation. Consumer price inflation has fluctuated in recent months. Table I-3 provides 12-month consumer price inflation in Apr 2020 and annual equivalent percentage changes for the months from Feb 2020 to Apr 2020 of the CPI and major segments. The final column provides inflation from Mar 2020 to Apr 2020. CPI inflation increased 0.3 percent in the 12 months ending in Apr 2020. The annual equivalent rate from Feb 2020 to Apr 2020 was minus 4.3 percent in the new episode of reversal and renewed positions of carry trades from zero interest rates to commodities exposures; and the monthly inflation rate of minus 0.8 percent annualizes at minus 9.2 percent with oscillating carry trades at the margin. These inflation rates fluctuate in accordance with inducement of risk appetite or frustration by risk aversion of carry trades from zero interest rates to commodity futures. At the margin, the decline in commodity prices in sharp recent risk aversion in commodities markets caused lower inflation worldwide (with return in some countries in Dec 2012 and Jan-Feb 2013) that followed a jump in Aug-Sep 2012 because of the relaxed risk aversion resulting from the bond-buying program of the European Central Bank or Outright Monetary Transactions (OMT) (https://www.ecb.europa.eu/press/pr/date/2012/html/pr120906_1.en.html). Carry trades moved away from commodities into stocks with resulting weaker commodity prices and stronger equity valuations. There is reversal of exposures in commodities but with preferences of equities by investors. Geopolitical events in Eastern Europe and the Middle East together with economic conditions worldwide are inducing risk concerns in commodities at the margin. With zero or very low interest rates, commodity prices would increase again in an environment of risk appetite, as shown in past oscillating inflation. Excluding food and energy, core CPI inflation was 1.4 percent in the 12 months ending in Apr 2020 and minus 1.2 percent in annual equivalent from Feb 2020 to Apr 2020. There is no deflation in the US economy that could justify further unconventional monetary policy, which is now open-ended or forever with very low interest rates and cessation of bond-buying by the central bank but with reinvestment of interest and principal, or QE→∞ even if the economy grows back to potential. The FOMC is engaging in renewed increases in the Fed balance sheet. Financial repression of very low interest rates is now intended as a permanent distortion of resource allocation by clouding risk/return decisions, preventing the economy from expanding along its optimal growth path. The FOMC had engaged in recent increases of purchases of securities after reducing interest rates. Consumer food prices in the US increased 3.5 percent in 12 months ending in Apr 2020 and changed at 9.1 percent in annual equivalent from Feb 2020 to Apr 2020. Monetary policies stimulating carry trades of commodities futures that increase prices of food constitute a highly regressive tax on lower income families for whom food is a major portion of the consumption basket especially with wage increases below inflation in a recovery without hiring (https://cmpassocregulationblog.blogspot.com/2020/04/united-states-imbalances-of-internal.html and earlier https://cmpassocregulationblog.blogspot.com/2020/03/sharp-contraction-of-valuations-of-risk.html). Energy consumer prices decreased 17.7 percent in 12 months, decreased at 52.6 percent in annual equivalent from Feb 2020 to Apr 2020 and decreased 10.1 percent in Apr 2020 or at minus 72.1 percent in annual equivalent. Waves of inflation are induced by carry trades from zero interest rates to commodity futures, which are unwound and repositioned during alternating risk aversion and risk appetite originating in the European debt crisis and increasingly in growth, soaring debt and politics in China. For lower income families, food and energy are a major part of the family budget. Inflation is not persistently low or threatening deflation in annual equivalent in any of the categories in Table I-2 but simply reflecting waves of inflation originating in carry trades. Zero interest rates induce carry trades into commodity futures positions with episodes of risk aversion and portfolio reallocations causing fluctuations that determine an upward trend of prices.

Table I-3, US, Consumer Price Index Percentage Changes 12 months NSA and Annual Equivalent ∆%

	% RI	∆% 12 Months Apr 2020/Apr 2019 NSA	∆% Annual Equivalent Feb 2020 to Apr 2020 SA	∆% Apr 2020/Mar 2020 SA
CPI All Items	100.000	0.3	-4.3	-0.8
CPI ex Food and Energy	79.882	1.4	-1.2	-0.4
Food	13.862	3.5	9.1	1.5
Food at Home	7.652	4.1	15.3	2.6
Food Away from Home	6.210	2.8	2.0	0.1
Energy	6.256	-17.7	-52.6	-10.1
Gasoline	2.957	-32.0	-77.8	-20.6
Electricity	2.412	0.2	-0.8	0.1
Commodities less Food and Energy	20.300	-0.9	-3.2	-0.7
New Vehicles	3.741	-0.6	-1.2	0.0
Used Cars and Trucks	2.587	-0.7	3.2	-0.4
Medical Care Commodities	1.623	0.7	-2.8	-0.1
Apparel	2.908	-5.7	-22.7	-4.7
Services Less Energy Services	59.582	2.2	-0.8	-0.4
Shelter	33.303	2.6	1.2	0.0
Rent of Primary Residence	7.820	3.5	3.2	0.2
Owner’s Equivalent Rent of Residences	24.134	3.1	2.8	0.2
Transportation Services	5.332	-5.5	-22.7	-4.7
Medical Care Services	7.273	5.8	5.3	0.5

% RI: Percent Relative Importance

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/

Table I-4 provides weights of components in the consumer price of the US in Dec 2012. Housing has a weight of 41.021 percent. The combined weight of housing and transportation is 57.867 percent or more than one-half of consumer expenditures of all urban consumers. The combined weight of housing, transportation and food and beverages is 73.128 percent of the US CPI. Table I-3 provides relative importance of key items in Apr 2020.

Table I-4, US, Relative Importance, 2009-2010 Weights, of Components in the Consumer Price Index, US City Average, Dec 2012

All Items	100.000
Food and Beverages	15.261
Food	14.312
Food at home	8.898
Food away from home	5.713
Housing	41.021
Shelter	31.681
Rent of primary residence	6.545
Owners’ equivalent rent	22.622
Apparel	3.564
Transportation	16.846
Private Transportation	15.657
New vehicles	3.189
Used cars and trucks	1.844
Motor fuel	5.462
Gasoline	5.274
Medical Care	7.163
Medical care commodities	1.714
Medical care services	5.448
Recreation	5.990
Education and Communication	6.779
Other Goods and Services	3.376

Refers to all urban consumers, covering approximately 87 percent of the US population (see http://www.bls.gov/cpi/cpiovrvw.htm#item1). Source: US Bureau of Labor Statistics http://www.bls.gov/cpi/cpiri2011.pdf http://www.bls.gov/cpi/cpiriar.htm http://www.bls.gov/cpi/cpiri2012.pdf

Chart I-18 provides the US consumer price index for housing from 2001 to 2020. Housing prices rose sharply during the decade until the bump of the global recession and increased again in 2011-2012 with some stabilization in 2013. There is renewed increase in 2014 followed by stabilization and renewed increase in 2015-2020. The CPI excluding housing would likely show much higher inflation. The commodity carry trades resulting from unconventional monetary policy have compressed income remaining after paying for indispensable shelter.

Chart I-18, US, Consumer Price Index, Housing, NSA, 2001-2020

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

Chart I-19 provides 12-month percentage changes of the housing CPI. Percentage changes collapsed during the global recession but have been rising into positive territory in 2011 and 2012-2013 but with the rate declining and then increasing into 2014. There is decrease into 2015 followed by stability and marginal increase in 2016-2020.

Chart I-19, US, Consumer Price Index, Housing, 12-Month Percentage Change, NSA, 2001-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/cpi/data.htm

There have been waves of consumer price inflation in the US in 2011 and into 2020 (Section I and earlier https://cmpassocregulationblog.blogspot.com/2020/04/valuations-of-risk-financial-assets.html) that are illustrated in Table I-5. The first wave occurred in Jan-Apr 2011 and was caused by the carry trade of commodity prices induced by unconventional monetary policy of zero interest rates. Cheap money at zero opportunity cost in environment of risk appetite was channeled into financial risk assets, causing increases in commodity prices. The annual equivalent rate of increase of the all-items CPI in Jan-Apr 2011 was 4.9 percent and the CPI excluding food and energy increased at annual equivalent rate of 1.8 percent. The second wave occurred during the collapse of the carry trade from zero interest rates to exposures in commodity futures because of risk aversion in financial markets created by the sovereign debt crisis in Europe. The annual equivalent rate of increase of the all-items CPI dropped to 1.8 percent in May-Jun 2011 while the annual equivalent rate of the CPI excluding food and energy increased at 2.4 percent. In the third wave in Jul-Sep 2011, annual equivalent CPI inflation rose to 3.2 percent while the core CPI increased at 2.4 percent. The fourth wave occurred in the form of increase of the CPI all-items annual equivalent rate to 1.8 percent in Oct-Nov 2011 with the annual equivalent rate of the CPI excluding food and energy remaining at 2.4 percent. The fifth wave occurred in Dec 2011 to Jan 2012 with annual equivalent headline inflation of 1.8 percent and core inflation of 2.4 percent. In the sixth wave, headline CPI inflation increased at annual equivalent 2.4 percent in Feb-Apr 2012 and 2.0 percent for the core CPI. The seventh wave in May-Jul occurred with annual equivalent inflation of minus 1.2 percent for the headline CPI in May-Jul 2012 and 2.0 percent for the core CPI. The eighth wave is with annual equivalent inflation of 6.8 percent in Aug-Sep 2012 but 5.7 percent including Oct. In the ninth wave, annual equivalent inflation in Nov 2012 was minus 2.4 percent under the new shock of risk aversion and 0.0 percent in Dec 2012 with annual equivalent of 0.0 percent in Nov 2012-Jan 2013 and 2.0 percent for the core CPI. In the tenth wave, annual equivalent of the headline CPI was 6.2 percent in Feb 2013 and 1.2 percent for the core CPI. In the eleventh wave, annual equivalent was minus 3.0 percent in Mar-Apr 2013 and 0.6 percent for the core index. In the twelfth wave, annual equivalent inflation was 1.4 percent in May-Sep 2013 and 2.2 percent for the core CPI. In the thirteenth wave, annual equivalent CPI inflation in Oct-Nov 2013 was 1.8 percent and 1.8 percent for the core CPI. Inflation returned in the fourteenth wave at 2.4 percent for the headline CPI index and 1.8 percent for the core CPI in annual equivalent for Dec 2013 to Mar 2014. In the fifteenth wave, inflation moved to annual equivalent 1.8 percent for the headline index in Apr-Jul 2014 and 2.1 percent for the core index. In the sixteenth wave, annual equivalent inflation was 0.0 percent in Aug 2014 and 1.2 percent for the core index. In the seventeenth wave, annual equivalent inflation was 0.0 percent for the headline CPI and 2.4 percent for the core in Sep-Oct 2014. In the eighteenth wave, annual equivalent inflation was minus 4.3 percent for the headline index in Nov 2014-Jan 2015 and 1.2 percent for the core. In the nineteenth wave, annual equivalent inflation was 3.2 percent for the headline index and 2.2 percent for the core index in Feb-Jun 2015. In the twentieth wave, annual equivalent inflation was at 2.4 percent in Jul 2015 for the headline and core indexes. In the twenty-first wave, headline consumer prices decreased at 1.2 percent in annual equivalent in Aug-Sep 2015 while core prices increased at annual equivalent 1.8 percent. In the twenty-second wave, consumer prices increased at annual equivalent 1.2 percent for the central index and 2.4 percent for the core in Oct-Nov 2015. In the twenty-third wave, annual equivalent inflation was minus 0.6 percent for the headline CPI in Dec 2015 to Jan 2016 and 1.8 percent for the core. In the twenty-fourth wave, annual equivalent was minus 1.2 percent and 2.4 percent for the core in Feb 2016. In the twenty-fifth wave, annual equivalent inflation was at 3.7 percent for the central index in Mar-Apr 2016 and at 1.8 percent for the core index. In the twenty-sixth wave, annual equivalent inflation was 3.7 percent for the central CPI in May-Jun 2016 and 2.4 percent for the core CPI. In the twenty-seventh wave, annual equivalent inflation was 0.0 percent for the central CPI and 1.2 percent for the core in Jul 2016. In the twenty-eighth wave, annual equivalent inflation was 2.4 percent for the headline CPI in Aug 2016 and 2.4 percent for the core. In the twenty-ninth wave, CPI prices increased at annual equivalent 2.4 percent in Sep-Oct 2016 while the core CPI increased at 1.2 percent. In the thirtieth wave, annual equivalent CPI prices increased at 2.4 percent in Nov-Dec 2016 while the core CPI increased at 2.4 percent. In the thirty-first wave, CPI prices increased at annual equivalent 4.9 percent in Jan 2017 while the core index increased at 2.4 percent. In the thirty-second wave, CPI prices changed at annual equivalent 1.2 percent in Feb 2017 while the core increased at 2.4 percent. In the thirty-third wave, CPI prices decreased at annual equivalent 1.2 percent in Mar 2017 while the core index changed at 0.0 percent. In the thirty-fourth wave, CPI prices increased at 1.2 percent annual equivalent in Apr 2017 while the core index increased at 1.2 percent. In the thirty-fifth wave, CPI prices changed at 0.0 annual equivalent in May-Jun 2017 while core prices increased at 1.2 percent. In the thirty-sixth wave, CPI prices increased at annual equivalent 1.2 percent in Jul 2017 while core prices increased at 1.2 percent. In the thirty-seventh wave, CPI prices increased at annual equivalent 5.5 percent in Aug-Sep 2017 while core prices increased at 1.8 percent. In the thirty-eighth wave, CPI prices increased at 2.4 percent annual equivalent in Oct-Nov 2017 while core prices increased at 2.4 percent. In the thirty-ninth wave, CPI prices increased at 3.7 percent annual equivalent in Dec 2017-Feb 2018 while core prices increased at 2.8 percent. In the fortieth wave, CPI prices changed at 0.0 percent annual equivalent in Mar 2018 while core prices increased at 2.4 percent. In the forty-first wave, CPI prices increased at 3.0 percent annual equivalent in Apr-May 2018 while core prices increased at 2.4 percent. In the forty-second wave, CPI prices increased at 1.8 percent in Jun-Sep 2018 while core prices increased at 1.8 percent. In the forty-third wave, CPI prices increased at annual equivalent 2.4 percent in Oct 2018 while core prices increased at 1.2 percent. In the forty-fourth wave, CPI prices changed at 0.0 percent annual equivalent in Nov 2018-Jan 2019 while core prices increased at 2.4 percent. In the forty-fifth wave, CPI prices increased at 3.7 percent annual equivalent in Feb-Apr 2019 while core prices increased at 2.0 percent. In the forty-sixth wave, CPI prices increased at 1.2 percent annual equivalent in May-Jun 2019 while core prices increased at 2.4 percent. In the forty-seventh wave, CPI prices increased at 3.7 percent annual equivalent in Jul 2019 while core prices increased at 3.7 percent. In the forty-eighth wave, CPI prices increased at 1.2 percent annual equivalent in Aug-Sep 2019 while core prices increased at 2.4 percent. In the forty-ninth wave, CPI prices increased at 2.4 percent annual equivalent in Oct-Dec 2019 while core prices increased at 1.6 percent. In the fiftieth wave, CPI prices increased at 1.2 percent annual equivalent in Jan-Feb 2020 and core prices at 2.4 percent. In the fifty-first wave, CPI prices decreased at annual equivalent 7.0 percent in Mar-Apr 2020 while core prices decreased at 3.0 percent. The conclusion is that inflation accelerates and decelerates in unpredictable fashion because of shocks or risk aversion and portfolio reallocations in carry trades from zero interest rates to commodity derivatives.

Table I-5, US, Headline and Core CPI Inflation Monthly SA and 12 Months NSA ∆%

	All Items SA Month	All Items NSA 12 month	Core SA Month	Core NSA 12 months
Apr 2020	-0.8	0.3	-0.4	1.4
Mar	-0.4	1.5	-0.1	2.1
AE ∆% Mar-Apr	-7.0		-3.0
Feb	0.1	2.3	0.2	2.4
Jan	0.1	2.5	0.2	2.3
AE ∆% Jan-Feb	1.2		2.4
Dec 2019	0.2	2.3	0.1	2.3
Nov	0.2	2.1	0.2	2.3
Oct	0.2	1.8	0.1	2.3
AE ∆% Oct-Dec	2.4		1.6
Sep	0.1	1.7	0.2	2.4
Aug	0.1	1.7	0.2	2.4
AE ∆% Aug-Sep	1.2		2.4
Jul	0.3	1.8	0.3	2.2
AE ∆% Jul	3.7		3.7
Jun	0.1	1.6	0.3	2.1
May	0.1	1.8	0.1	2.0
AE ∆% May-Jun	1.2		2.4
Apr	0.3	2.0	0.2	2.1
Mar	0.4	1.9	0.2	2.0
Feb	0.2	1.5	0.1	2.1
AE ∆% Feb-Apr	3.7		2.0
Jan	0.0	1.6	0.2	2.2
Dec 2018	0.0	1.9	0.2	2.2
Nov	0.0	2.2	0.2	2.2
AE ∆% Nov-Jan	0.0		2.4
Oct	0.2	2.5	0.1	2.1
AE ∆% Oct	2.4		1.2
Sep	0.1	2.3	0.2	2.2
Aug	0.2	2.7	0.1	2.2
Jul	0.1	2.9	0.2	2.4
Jun	0.2	2.9	0.1	2.3
AE ∆% Jun-Sep	1.8		1.8
May	0.3	2.8	0.2	2.2
Apr	0.2	2.5	0.2	2.1
AE ∆% Apr-May	3.0		2.4
Mar	0.0	2.4	0.2	2.1
AE ∆% Mar	0.0		2.4
Feb	0.3	2.2	0.2	1.8
Jan	0.4	2.1	0.3	1.8
Dec 2017	0.2	2.1	0.2	1.8
AE ∆% Dec-Feb	3.7		2.8
Nov	0.3	2.2	0.1	1.7
Oct	0.1	2.0	0.3	1.8
AE ∆% Oct-Nov	2.4		2.4
Sep	0.5	2.2	0.1	1.7
Aug	0.4	1.9	0.2	1.7
AE ∆% Aug-Sep	5.5		1.8
Jul	0.1	1.7	0.1	1.7
AE ∆% Jul	1.2		1.2
Jun	0.1	1.6	0.1	1.7
May	-0.1	1.9	0.1	1.7
AE ∆% May-Jun	0.0		1.2
Apr	0.1	2.2	0.1	1.9
AE ∆% Apr	1.2		1.2
Mar	-0.1	2.4	0.0	2.0
AE ∆% Mar	-1.2		0.0
Feb	0.1	2.7	0.2	2.2
AE ∆% Feb	1.2		2.4
Jan	0.4	2.5	0.2	2.3
AE ∆% Jan	4.9		2.4
Dec 2016	0.3	2.1	0.2	2.2
Nov	0.1	1.7	0.2	2.1
AE ∆% Nov-Dec	2.4		2.4
Oct	0.2	1.6	0.1	2.1
Sep	0.2	1.5	0.1	2.2
AE ∆% Sep-Oct	2.4		1.2
Aug	0.2	1.1	0.2	2.3
AE ∆ Aug	2.4		2.4
Jul	0.0	0.8	0.1	2.2
AE ∆% Jul	0.0		1.2
Jun	0.3	1.0	0.2	2.2
May	0.3	1.0	0.2	2.2
AE ∆% May-Jun	3.7		2.4
Apr	0.4	1.1	0.2	2.1
Mar	0.2	0.9	0.1	2.2
AE ∆% Mar-Apr	3.7		1.8
Feb	-0.1	1.0	0.2	2.3
AE ∆% Feb	-1.2		2.4
Jan	0.0	1.4	0.2	2.2
Dec 2015	-0.1	0.7	0.1	2.1
AE ∆% Dec-Jan	-0.6		1.8
Nov	0.1	0.5	0.2	2.0
Oct	0.1	0.2	0.2	1.9
AE ∆% Oct-Nov	1.2		2.4
Sep	-0.2	0.0	0.2	1.9
Aug	0.0	0.2	0.1	1.8
AE ∆% Aug-Sep	-1.2		1.8
Jul	0.2	0.2	0.2	1.8
AE ∆% Jul	2.4		2.4
Jun	0.3	0.1	0.2	1.8
May	0.3	0.0	0.1	1.7
Apr	0.1	-0.2	0.2	1.8
Mar	0.3	-0.1	0.2	1.8
Feb	0.3	0.0	0.2	1.7
AE ∆% Feb-Jun	3.2		2.2
Jan	-0.6	-0.1	0.1	1.6
Dec 2014	-0.3	0.8	0.1	1.6
Nov	-0.2	1.3	0.1	1.7
AE ∆% Nov-Jan	-4.3		1.2
Oct	0.0	1.7	0.2	1.8
Sep	0.0	1.7	0.2	1.7
AE ∆% Sep-Oct	0.0		2.4
Aug	0.0	1.7	0.1	1.7
AE ∆% Aug	0.0		1.2
Jul	0.1	2.0	0.2	1.9
Jun	0.1	2.1	0.1	1.9
May	0.2	2.1	0.2	2.0
Apr	0.2	2.0	0.2	1.8
AE ∆% Apr-Jul	1.8		2.1
Mar	0.2	1.5	0.2	1.7
Feb	0.1	1.1	0.1	1.6
Jan	0.2	1.6	0.1	1.6
Dec 2013	0.3	1.5	0.2	1.7
AE ∆% Dec-Mar	2.4		1.8
Nov	0.2	1.2	0.2	1.7
Oct	0.1	1.0	0.1	1.7
AE ∆% Oct-Nov	1.8		1.8
Sep	0.0	1.2	0.2	1.7
Aug	0.2	1.5	0.2	1.8
Jul	0.2	2.0	0.2	1.7
Jun	0.2	1.8	0.2	1.6
May	0.0	1.4	0.1	1.7
AE ∆% May-Sep	1.4		2.2
Apr	-0.2	1.1	0.0	1.7
Mar	-0.3	1.5	0.1	1.9
AE ∆% Mar-Apr	-3.0		0.6
Feb	0.5	2.0	0.1	2.0
AE ∆% Feb	6.2		1.2
Jan	0.2	1.6	0.2	1.9
Dec 2012	0.0	1.7	0.2	1.9
Nov	-0.2	1.8	0.1	1.9
AE ∆% Nov-Jan	0.0		2.0
Oct	0.3	2.2	0.2	2.0
Sep	0.5	2.0	0.2	2.0
Aug	0.6	1.7	0.1	1.9
AE ∆% Aug-Oct	5.7		2.0
Jul	0.0	1.4	0.2	2.1
Jun	-0.1	1.7	0.2	2.2
May	-0.2	1.7	0.1	2.3
AE ∆% May-Jul	-1.2		2.0
Apr	0.2	2.3	0.2	2.3
Mar	0.2	2.7	0.2	2.3
Feb	0.2	2.9	0.1	2.2
AE ∆% Feb-Apr	2.4		2.0
Jan	0.3	2.9	0.2	2.3
Dec 2011	0.0	3.0	0.2	2.2
AE ∆% Dec-Jan	1.8		2.4
Nov	0.2	3.4	0.2	2.2
Oct	0.1	3.5	0.2	2.1
AE ∆% Oct-Nov	1.8		2.4
Sep	0.2	3.9	0.1	2.0
Aug	0.3	3.8	0.3	2.0
Jul	0.3	3.6	0.2	1.8
AE ∆% Jul-Sep	3.2		2.4
Jun	0.0	3.6	0.2	1.6
May	0.3	3.6	0.2	1.5
AE ∆% May-Jun	1.8		2.4
Apr	0.5	3.2	0.1	1.3
Mar	0.5	2.7	0.1	1.2
Feb	0.3	2.1	0.2	1.1
Jan	0.3	1.6	0.2	1.0
AE ∆% Jan-Apr	4.9		1.8
Dec 2010	0.4	1.5	0.1	0.8
Nov	0.3	1.1	0.1	0.8
Oct	0.3	1.2	0.1	0.6
Sep	0.2	1.1	0.1	0.8
Aug	0.1	1.1	0.1	0.9
Jul	0.2	1.2	0.1	0.9
Jun	0.0	1.1	0.1	0.9
May	-0.1	2.0	0.1	0.9
Apr	0.0	2.2	0.0	0.9
Mar	0.0	2.3	0.0	1.1
Feb	-0.1	2.1	0.0	1.3
Jan	0.1	2.6	-0.1	1.6

Note: Core: excluding food and energy; AE: annual equivalent

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/

The behavior of the US consumer price index NSA from 2001 to 2020 is in Chart I-20. Inflation in the US is very dynamic without deflation risks that would justify symmetric inflation targets. The hump in 2008 originated in the carry trade from interest rates dropping to zero into commodity futures. There is no other explanation for the increase of the Cushing OK Crude Oil Future Contract 1 from $55.64/barrel on Jan 9, 2007 to $145.29/barrel on July 3, 2008 during deep global recession, collapsing under a panic of flight into government obligations and the US dollar to $37.51/barrel on Feb 13, 2009 and then rising by carry trades to $113.93/barrel on Apr 29, 2012, collapsing again and then recovering again to $105.23/barrel, all during mediocre economic recovery with peaks and troughs influenced by bouts of risk appetite and risk aversion (data from the US Energy Information Administration EIA, https://www.eia.gov/). The unwinding of the carry trade with the TARP announcement of toxic assets in banks channeled cheap money into government obligations (see Cochrane and Zingales 2009).

Chart I-20, US, Consumer Price Index, NSA, 2001-2020

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

Chart I-21 provides 12-month percentage changes of the consumer price index from 2001 to 2020. There was no deflation or threat of deflation from 2008 into 2009. Commodity prices collapsed during the panic of toxic assets in banks. When stress tests in 2009 revealed US bank balance sheets in much stronger position, cheap money at zero opportunity cost exited government obligations and flowed into carry trades of risk financial assets. Increases in commodity prices drove again the all items CPI with interruptions during risk aversion originating in multiple fears but especially from the sovereign debt crisis of Europe.

Chart I-21, US, Consumer Price Index, 12-Month Percentage Change, NSA, 2001-2020

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

The trend of increase of the consumer price index excluding food and energy in Chart I-22 does not reveal any threat of deflation that would justify symmetric inflation targets. There are mild oscillations in a neat upward trend.

Chart I-22, US, Consumer Price Index Excluding Food and Energy, NSA, 2001-2020

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

Chart I-23 provides 12-month percentage change of the consumer price index excluding food and energy. Past-year rates of inflation fell toward 1 percent from 2001 into 2003 because of the recession and the decline of commodity prices beginning before the recession with declines of real oil prices. Near zero interest rates with fed funds at 1 percent between Jun 2003 and Jun 2004 stimulated carry trades of all types, including in buying homes with subprime mortgages in expectation that low interest rates forever would increase home prices permanently, creating the equity that would permit the conversion of subprime mortgages into creditworthy mortgages (Gorton 2009EFM; see https://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html). Inflation rose and then collapsed during the unwinding of carry trades and the housing debacle of the global recession. Carry trades into 2011 and 2012 gave a new impulse to CPI inflation, all items and core. Symmetric inflation targets destabilize the economy by encouraging hunts for yields that inflate and deflate financial assets, obscuring risk/return decisions on production, investment, consumption and hiring.

Chart I-23, US, Consumer Price Index Excluding Food and Energy, 12-Month Percentage Change, NSA, 2001-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/cpi/data.htm

Headline and core producer price indexes are in Table I-6. The headline PPI SA decreased 3.5 percent in Apr 2020 and decreased 5.1 percent NSA in the 12 months ending in Apr 2020. The core PPI SA changed 0.0 percent in Apr 2020 and increased 1.1 percent in 12 months. Analysis of annual equivalent rates of change shows inflation waves similar to those worldwide. In the first wave, the absence of risk aversion from the sovereign risk crisis in Europe motivated the carry trade from zero interest rates into commodity futures that caused the annual equivalent rate of 11.1 percent in the headline PPI in Jan-Apr 2011 and 3.7 percent in the core PPI. In the second wave, commodity futures prices collapsed in Jun 2011 with the return of risk aversion originating in the sovereign risk crisis of Europe. The annual equivalent rate of headline PPI inflation collapsed to 0.6 percent in May-Jun 2011 but the core annual equivalent inflation rate was higher at 2.4 percent. In the third wave, headline PPI inflation resuscitated with annual equivalent at 4.1 percent in Jul-Sep 2011 and core PPI inflation at 3.2 percent. Core PPI inflation was persistent throughout 2011, jumping from annual equivalent at 2.0 percent in the first three months of 2010 to 3.0 percent in 12 months ending in Dec 2011. Unconventional monetary policy is based on the proposition that core rates reflect more fundamental inflation and are thus better predictors of the future. In practice, the relation of core and headline inflation is as difficult to predict as future inflation (see IIID Supply Shocks in https://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html). In the fourth wave, risk aversion originating in the lack of resolution of the European debt crisis caused unwinding of carry trades with annual equivalent headline PPI inflation of 0.0 percent in Oct-Dec 2011 and 2.0 percent in the core annual equivalent. In the fifth wave from Jan to Mar 2012, annual equivalent inflation was 3.2 percent for the headline index but 3.2 percent for the core index excluding food and energy. In the sixth wave, annual equivalent inflation in Apr-May 2012 during renewed risk aversion was minus 4.1 percent for the headline PPI and 1.8 percent for the core. In the seventh wave, continuing risk aversion caused reversal of carry trades into commodity exposures with annual equivalent headline inflation of minus 1.2 percent in Jun-Jul 2012 while core PPI inflation was at annual equivalent 3.7 percent. In the eighth wave, relaxed risk aversion because of the announcement of the impaired bond buying program or Outright Monetary Transactions (OMT) of the European Central Bank (https://www.ecb.europa.eu/press/pr/date/2012/html/pr120906_1.en.html) induced carry trades that drove annual equivalent inflation of producer prices of the United States at 13.4 percent in Aug-Sep 2012 and 1.2 percent in the core index. In the ninth wave, renewed risk aversion caused annual equivalent inflation of minus 2.4 percent in Oct 2012-Dec 2012 in the headline index and 1.2 percent in the core index. In the tenth wave, annual equivalent inflation was 7.4 percent in the headline index in Jan-Feb 2013 and 1.8 percent in the core index. In the eleventh wave, annual equivalent inflation was minus 7.0 percent in Mar-Apr 2012 and 1.2 percent for the core index. In the twelfth wave, annual equivalent inflation returned at 2.7 percent in May-Aug 2013 and 1.2 percent in the core index. In the thirteenth wave, portfolio reallocations away from commodities and into equities reversed commodity carry trade with annual equivalent inflation of 0.8 percent in Sep-Nov 2013 in the headline PPI and 1.6 percent in the core. In the fourteenth wave, annual equivalent inflation returned at 5.7 percent annual equivalent for the headline index in Dec 2013-Feb 2014 and 3.7 percent for the core index. In the fifteenth wave, annual equivalent inflation was 3.7 percent for the general PPI index in Mar 2014 and 0.0 percent for the core PPI index. In the sixteenth wave, annual equivalent headline PPI inflation increased at 0.9 percent in Apr-Jul 2014 and 1.8 percent for the core PPI. In the seventeenth wave, annual equivalent inflation in Aug-Nov 2014 was minus 2.7 percent and 1.8 percent for the core index. In the eighteenth wave, annual equivalent inflation fell at 17.6 percent for the general index in Dec 2014 to Jan 2015 and increased at 3.7 percent in the core index. In the nineteenth wave, annual equivalent inflation increased at 1.2 percent in Feb 2015 and increased at 3.7 percent for the core index. In the twentieth wave, annual equivalent producer prices increased at 4.9 percent in Mar 2015 and the core at 1.2 percent. In the twenty-first wave, producer prices fell at 8.1 percent annual equivalent in Apr 2015 while the core index increased at 1.2 percent. In the twenty-second wave, producer prices increased at annual equivalent 10.7 percent in May-Jun 2015 and core producer prices at 2.8 percent. In the twenty-third wave, producer prices fell at 1.2 percent in Jul 2015 and the core index increased at 2.4 percent. In the twenty-fourth wave, annual equivalent inflation fell at 7.4 percent in Aug-Oct 2015 and the core index changed at 0.0 percent annual equivalent. In the twenty-fifth wave, annual equivalent inflation was 1.2 percent in Nov 2015 with the core at 1.2 percent. In the twenty-sixth wave, the headline PPI fell at annual equivalent 6.6 percent and the core increased at 2.0 percent in Dec 2015-Feb 2016. In the twenty-seventh wave, annual equivalent inflation was 3.7 percent for the central index in Mar-May 2016 and 1.6 percent for the core. In the twenty-eighth wave, annual equivalent inflation was 8.7 percent for the headline index in Jun 2016 and 3.7 percent for the core. In the twenty-ninth wave, producer prices fell at annual equivalent 1.2 percent in Jul 2016 and core producer prices changed at 0.0 percent. In the thirtieth wave, producer prices fell at 3.5 percent annual equivalent in Aug 2016 while core producer prices increased at 1.2 percent. In the thirty-first wave, producer prices increased at annual equivalent 6.2 percent in Sep-Oct 2016 while core prices increased at 1.8 percent. In the thirty-second wave, producer prices decreased at 3.5 percent annual equivalent in Nov 2016 and the core index increased at 1.2 percent. In the thirty-third wave, producer prices increased at 11.4 percent in Dec 2016 and the core index increased at 2.4 percent. In the thirty-fourth wave, producer prices increased at 8.7 percent in Jan 2017 while the core increased at 2.4 percent. In the thirty-fifth wave, producer prices increased at 3.7 percent in Feb 2017 while the core index increased at 1.2 percent. In the thirty-sixth wave, producer prices increased at annual equivalent 1.2 percent in Mar 2017 while core producer prices increased at 3.7 percent. In the thirty-seventh wave, annual equivalent inflation of the headline index was at 4.9 percent in Apr 2017 and 4.9 percent for the core. In the thirty-eighth wave, producer prices fell at 9.2 percent annual equivalent in May 2017 while core producer prices changed at 0.0 percent. In the thirty-ninth wave, producer prices increased at annual equivalent 2.4 percent in Jun 2017 while core producer prices increased at 2.4 percent. In the fortieth wave, headline producer prices fell at 1.2 percent annual equivalent in Jul 2017 while core prices increased at 1.2 percent. In the forty-first wave, central producer prices increased at 8.7 percent annual equivalent in Aug-Sep 2017 while core prices increased at 1.2 percent. In the forty-second wave, producer prices increased at annual equivalent 6.8 percent in Oct-Nov 2017 while core producer prices increased at 4.3 percent. In the forty-third wave, producer prices increased at annual equivalent 1.2 percent in Dec 2017 while core prices changed at 0.0 percent. In the forty-fourth wave, producer prices increased at 3.7 percent annual equivalent in Jan 2018 while core producer prices changed at 1.2 percent. In the forty-fifth wave, producer prices increased at annual equivalent 2.4 percent in Feb 2018 while core prices increased at 1.2 percent. In the forty-sixth wave, producer prices increased at 2.4 percent annual equivalent in Mar 2018 while core prices increased at 3.7 percent. In the forty-seventh wave, producer prices fell at 3.5 percent annual equivalent in Apr 2018 while core prices increased at 2.4 percent. In the forty-eighth wave, producer prices increased at annual equivalent 8.7 percent in May 2018 while core prices increased at 2.4 percent. In the forty-ninth wave, producer prices increased at annual equivalent 1.8 percent in Jun-Jul 2018 while core prices increased at 3.0 percent. In the fiftieth wave, producer prices increased at annual equivalent 1.8 percent in Aug-Sep 2018 while core prices increased at 2.4 percent. In the fifty-first wave, producer prices increased at annual equivalent 8.7 percent in Oct 2018 while core prices increased at 2.4 percent. In the fifty-second wave, producer prices decreased at annual equivalent 7.7 percent in Nov 2018-Jan 2019 while core prices increased at 2.8 percent. In the fifty-third wave, producer prices increased at annual equivalent 8.3 percent in Feb-Apr 2019 while core prices increased at 1.6 percent. In the fifty-fourth wave, producer prices decreased at annual equivalent 3.0 percent in May-Jun 2019 while core prices increased at 0.6 percent. In the fifty-fifth wave, producer prices increased at annual equivalent 3.7 percent in Jul 2019 while core prices increased at 1.2 percent. In the fifty-sixth wave, producer prices fell at annual equivalent 2.4 percent in Aug-Sep 2019 while core prices increased at 0.6 percent. In the fifty-seventh wave, producer prices increased at annual equivalent 4.9 percent in Oct-Dec 2019 while core prices increased at 0.8 percent. In the fifty-eighth wave, producer prices changed at 0.0 percent annual equivalent in Jan 2020 while core prices increased at 2.4 percent. In the fifty-ninth wave, producer prices decreased at annual equivalent 20.0 percent in Feb-Apr 2020 while core prices increased at 1.2 percent. It is almost impossible to forecast PPI inflation and its relation to CPI inflation. “Inflation surprise” by monetary policy could be proposed to climb along a downward sloping Phillips curve, resulting in higher inflation but lower unemployment (see Kydland and Prescott 1977, Barro and Gordon 1983 and past comments of this blog http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html). The architects of monetary policy would require superior inflation forecasting ability compared to forecasting naivety by everybody else. In practice, we are all naïve in forecasting inflation and other economic variables and events.

Table I-6, US, Headline and Core PPI Inflation Monthly SA and 12-Month NSA ∆%

	Finished Goods SA Month	Finished Goods NSA 12 months	Finished Core SA Month	Finished Core NSA 12 months
Apr 2020	-3.5	-5.1	0.0	1.1
Mar	-1.1	-0.9	0.3	1.2
Feb	-0.9	1.2	0.0	1.1
AE Feb-Apr	-20.0		1.2
Jan	0.0	2.5	0.2	1.2
AE Jan	0.0		2.4
Dec 2019	0.2	1.7	0.0	1.5
Nov	0.4	1.0	0.2	1.6
Oct	0.6	-0.2	0.0	1.7
AE Oct-Dec	4.9		0.8
Sep	-0.1	-0.1	0.1	1.9
Aug	-0.3	0.3	0.0	2.0
AE Aug-Sep	-2.4		0.6
Jul	0.3	0.7	0.1	2.2
AE Jul	3.7		1.2
Jun	-0.5	0.5	0.0	2.3
May	0.0	1.3	0.1	2.5
AE May-Jun	-3.0		0.6
Apr	0.5	2.1	0.1	2.5
Mar	1.1	1.4	0.2	2.7
Feb	0.4	0.5	0.1	2.7
AE Feb-Apr	8.3		1.6
Jan	-0.6	0.4	0.4	2.9
Dec 2018	-0.6	1.3	0.1	2.6
Nov	-0.8	2.0	0.2	2.6
AE Nov-Jan	-7.7		2.8
Oct	0.7	3.7	0.2	2.5
AE Oct	8.7		2.4
Sep	0.2	3.2	0.2	2.8
Aug	0.1	3.7	0.2	2.6
AE Aug-Sep	1.8		2.4
Jul	0.1	4.3	0.3	2.4
Jun	0.2	4.1	0.2	2.1
AE Jun-Jul	1.8		3.0
May	0.7	4.1	0.2	2.1
AE May	8.7		2.4
Apr	-0.3	2.4	0.2	1.9
AE Apr	-3.5		2.4
Mar	0.2	3.0	0.3	2.0
AE Mar	2.4		3.7
Feb	0.2	2.7	0.1	2.0
AE Feb	2.4		1.2
Jan	0.3	2.9	0.1	1.8
AE Jan	3.7		1.2
Dec 2017	0.1	3.2	0.0	2.0
AE Dec	1.2		0.0
Nov	0.9	4.2	0.3	2.1
Oct	0.2	2.9	0.4	2.0
AE Oct-Nov	6.8		4.3
Sep	0.8	3.3	0.0	1.7
Aug	0.6	3.0	0.2	1.8
AE Aug-Sep	8.7		1.2
Jul	-0.1	2.1	0.1	1.8
AE Jul	-1.2		1.2
Jun	0.2	2.1	0.2	1.7
AE Jun	2.4		2.4
May	-0.8	2.8	0.0	1.9
AE May	-9.2		0.0
Apr	0.4	4.0	0.4	2.0
AE Apr	4.9		4.9
Mar	0.1	3.8	0.3	1.8
AE Mar	1.2		3.7
Feb	0.3	3.8	0.1	1.6
AE Feb	3.7		1.2
Jan	0.7	2.9	0.2	1.7
AE Jan	8.7		2.4
Dec 2016	0.9	1.9	0.2	1.7
AE Dec	11.4		2.4
Nov	-0.3	0.4	0.1	1.6
AE Nov	-3.5		1.2
Oct	0.5	0.7	0.1	1.6
Sep	0.5	-0.1	0.2	1.4
AE Sep-Oct	6.2		1.8
Aug	-0.3	-1.9	0.1	1.4
AE Aug	-3.5		1.2
Jul	-0.1	-2.0	0.0	1.2
AE Jul	-1.2		0.0
Jun	0.7	-2.0	0.3	1.5
AE Jun	8.7		3.7
May	0.5	-2.2	0.1	1.6
Apr	0.2	-1.5	0.2	1.6
Mar	0.2	-2.3	0.1	1.5
AE Mar-May	3.7		1.6
Feb	-0.7	-2.0	0.1	1.5
Jan	-0.3	-1.2	0.3	1.7
Dec 2015	-0.7	-2.7	0.1	1.8
AE Dec-Feb	-6.6		2.0
Nov	0.1	-3.3	0.1	1.7
AE Nov	1.2		1.2
Oct	-0.3	-4.0	-0.1	1.8
Sep	-1.2	-4.1	0.1	2.1
Aug	-0.4	-3.1	0.0	2.1
AE ∆% Aug-Oct	-7.4		0.0
Jul	-0.1	-2.8	0.2	2.3
AE ∆% Jul	-1.2		2.4
Jun	0.6	-2.6	0.5	2.3
May	1.1	-2.9	0.2	2.0
AE ∆% May-Jun	10.7		2.8
Apr	-0.7	-4.5	0.1	2.0
AE ∆% Apr	-8.1		1.2
Mar	0.4	-3.3	0.1	2.1
AE ∆% Mar	4.9		1.2
Feb	0.1	-3.2	0.3	1.9
AE ∆% Feb	1.2		3.7
Jan	-1.8	-3.0	0.5	1.7
Dec 2014	-1.4	-0.6	0.1	1.7
AE ∆% Dec-Jan	-17.6		3.7
Nov	-0.3	1.1	0.0	2.0
Oct	-0.3	1.8	0.3	2.2
Sep	-0.3	2.2	0.1	2.1
Aug	0.0	2.3	0.2	1.9
AE ∆% Aug-Nov	-2.7		1.8
July	0.0	2.9	0.1	1.9
Jun	0.2	2.8	0.2	1.9
May	-0.3	2.5	0.2	1.8
Apr	0.4	3.1	0.1	1.7
AE ∆% Apr-Jul	0.9		1.8
Mar	0.3	1.8	0.0	1.7
AE ∆% Mar	3.7		0.0
Feb	0.2	1.3	0.1	1.9
Jan	0.8	1.6	0.4	2.0
Dec 2013	0.4	1.4	0.4	1.6
AE ∆% Dec-Feb	5.7		3.7
Nov	0.3	0.8	0.2	1.3
Oct	0.2	0.3	0.1	1.2
Sep	-0.3	0.2	0.1	1.2
AE ∆% Sep-Nov	0.8		1.6
Aug	0.5	1.2	0.1	1.2
Jul	-0.1	2.1	0.1	1.3
Jun	0.1	2.3	0.1	1.6
May	0.4	1.6	0.1	1.7
AE ∆% May-Aug	2.7		1.2
Apr	-0.6	0.5	0.1	1.7
Mar	-0.6	1.1	0.1	1.7
AE ∆% Mar-Apr	-7.0		1.2
Feb	0.6	1.8	0.2	1.8
Jan	0.6	1.5	0.1	1.8
AE ∆% Jan-Feb	7.4		1.8
Dec 2012	-0.2	1.4	0.0	2.1
Nov	-0.5	1.4	0.2	2.2
Oct	0.1	2.3	0.1	2.2
AE ∆% Oct-Dec	-2.4		1.2
Sep	0.9	2.1	0.0	2.4
Aug	1.2	1.9	0.2	2.6
AE ∆% Aug-Sep	13.4		1.2
Jul	0.2	0.5	0.4	2.6
Jun	-0.4	0.7	0.2	2.6
AE ∆% Jun-Jul	-1.2		3.7
May	-0.6	0.6	0.1	2.7
Apr	-0.1	1.8	0.2	2.7
AE ∆% Apr-May	-4.1		1.8
Mar	0.1	2.7	0.2	2.9
Feb	0.3	3.4	0.2	3.1
Jan	0.4	4.1	0.4	3.1
AE ∆% Jan-Mar	3.2		3.2
Dec 2011	-0.1	4.7	0.2	3.0
Nov	0.3	5.7	0.1	3.0
Oct	-0.2	5.9	0.2	2.9
AE ∆% Oct-Dec	0.0		2.0
Sep	0.9	7.1	0.3	2.8
Aug	-0.3	6.6	0.2	2.7
Jul	0.4	7.2	0.3	2.7
AE ∆% Jul-Sep	4.1		3.2
Jun	-0.4	7.0	0.3	2.3
May	0.5	7.1	0.1	2.1
AE ∆% May-Jun	0.6		2.4
Apr	0.9	6.7	0.3	2.3
Mar	0.7	5.7	0.3	2.0
Feb	1.1	5.5	0.2	1.8
Jan	0.8	3.7	0.4	1.6
AE ∆% Jan-Apr	11.0		3.7
Dec 2010	0.9	3.8	0.2	1.4
Nov	0.4	3.4	0.0	1.2
Oct	0.8	4.3	0.0	1.6
Sep	0.3	3.9	0.2	1.6
Aug	0.6	3.3	0.1	1.3
Jul	0.1	4.1	0.1	1.5
Jun	-0.3	2.7	0.1	1.1
May	0.0	5.1	0.3	1.3
Apr	0.0	5.4	0.0	0.9
Mar	0.7	5.9	0.2	0.9
Feb	-0.7	4.1	0.1	1.0
Jan	1.0	4.5	0.2	1.0

Note: Core: excluding food and energy; AE: annual equivalent

Source: US Bureau of Labor Statistics https://www.bls.gov/ppi/data.htm

The US producer price index NSA from 2000 to 2020 is in Chart I-24. There are two episodes of decline of the PPI during recessions in 2001 and in 2008. Barsky and Kilian (2004) consider the 2001 episode as one in which real oil prices were declining when recession began. Recession and the fall of commodity prices instead of generalized deflation explain the behavior of US inflation in 2008. There is similar collapse of producer prices into 2015 as in 2009 caused by the drop of

commodity prices.

Chart I-24, US, Producer Price Index, NSA, 2000-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

Twelve-month percentage changes of the PPI NSA from 2000 to 2020 are in Chart I-25. It may be possible to forecast trends a few months in the future under adaptive expectations but turning points are almost impossible to anticipate especially when related to fluctuations of commodity prices in response to risk aversion. In a sense, monetary policy has been tied to behavior of the PPI in the negative 12-month rates in 2001 to 2003 and then again in 2009 to 2010. There is similar sharp decline of inflation into 2015 caused by the drop of commodities. Monetary policy following deflation fears caused by commodity price fluctuations would introduce significant volatility and risks in financial markets and eventually in consumption and investment.

Chart I-25, US, Producer Price Index, 12-Month Percentage Change NSA, 2000-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

The US PPI excluding food and energy from 2000 to 2020 is in Chart I-26. There is here again a smooth trend of inflation instead of prolonged deflation as in Japan.

Chart I-26, US, Producer Price Index Excluding Food and Energy, NSA, 2000-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

Twelve-month percentage changes of the producer price index excluding food and energy are in Chart I-27. Fluctuations replicate those in the headline PPI. There is an evident trend of increase of 12-month rates of core PPI inflation in 2011 but lower rates in 2012-2014. Prices rose less rapidly into 2015-2018 as during earlier fluctuations. Twelve-month rates decrease in the final segment 2019-2020.

Chart I-27, US, Producer Price Index Excluding Food and Energy, NSA, 12-Month Percentage Changes, 2000-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

The US producer price index of energy goods from 2000 to 2020 is in Chart I-28. There is a clear upward trend with fluctuations, which would not occur under persistent deflation.

Chart I-28, US, Producer Price Index Finished Energy Goods, NSA, 2000-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

Chart I-29 provides 12-month percentage changes of the producer price index of energy goods from 2000 to 2020. Barsky and Killian (2004) relate the episode of declining prices of energy goods in 2001 to 2002 to the analysis of decline of real oil prices. Interest rates dropping to zero during the global recession in 2008 induced carry trades that explain the rise of the PPI of energy goods toward 30 percent. Bouts of risk aversion with policy interest rates held close to zero explain the fluctuations in the 12-month rates of the PPI of energy goods in the expansion phase of the economy. Symmetric inflation targets induce significant instability in inflation and interest rates with adverse effects on financial markets and the overall economy.

Chart I-29, US, Producer Price Index Finished Energy Goods, 12-Month Percentage Change, NSA, 2000-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

Effective with the January 2014 Producer Price Index (PPI) data release in February 2014 (https://www.bls.gov/news.release/archives/ppi_02192014.pdf 8), “BLS transitions from the Stage of Processing (SOP) to the Final Demand-Intermediate Demand (FD-ID) aggregation system. This shift results in significant changes to the PPI news release, as well as other documents available from PPI. The transition to the FD-ID system is the culmination of a long-standing PPI objective to improve the current SOP aggregation system by incorporating PPIs for services, construction, government purchases, and exports. In comparison to the SOP system, the FD-ID system more than doubles PPI coverage of the United States economy to over 75 percent of in-scope domestic production. The FD-ID system was introduced as a set of experimental indexes in January 2011. Nearly all new FD-ID goods, services, and construction indexes provide historical data back to either November 2009 or April 2010, while the indexes for goods that correspond with the historical SOP indexes go back to the 1970s or earlier.”

Headline and core final demand producer price indexes are in Table I-6B. The headline FD PPI SA decreased 1.3 percent in Apr 2020 and decreased 1.2 percent NSA in the 12 months ending in Apr 2020. The core FD PPI SA decreased 0.3 percent in Apr 2020 and increased 0.6 percent in 12 months. Analysis of annual equivalent rates of change shows inflation waves similar to those worldwide. In the first wave, the absence of risk aversion from the sovereign risk crisis in Europe motivated the carry trade from zero interest rates into commodity futures that caused the average equivalent rate of 7.4 percent in the headline FD PPI in Jan-Apr 2011 and 4.6 percent in the core FD PPI. In the second wave, commodity futures prices collapsed in Jun 2011 with the return of risk aversion originating in the sovereign risk crisis of Europe. The annual equivalent rate of headline FD PPI inflation collapsed to 2.4 percent in May-Jun 2011 but the core annual equivalent inflation rate was at 2.4 percent. In the third wave, headline FD PPI inflation resuscitated with annual equivalent at 3.2 percent in Jul-Sep 2011 and core PPI inflation at 3.2 percent. Core FD PPI inflation was persistent throughout 2011, from annual equivalent at 4.6 percent in the first four months of 2011 to 2.6 percent in 12 months ending in Dec 2011. Unconventional monetary policy is based on the proposition that core rates reflect more fundamental inflation and are thus better predictors of the future. In practice, the relation of core and headline inflation is as difficult to predict as future inflation (see IIID Supply Shocks in https://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html). In the fourth wave, risk aversion originating in the lack of resolution of the European debt crisis caused unwinding of carry trades with annual equivalent headline FD PPI inflation of minus 0.8 percent in Oct-Dec 2011 and minus 0.4 percent in the core annual equivalent. In the fifth wave from Jan to Mar 2012, annual equivalent inflation was 3.7 percent for the headline index and 3.7 percent for the core index excluding food and energy. In the sixth wave, annual equivalent inflation in Apr-May 2012 during renewed risk aversion was 1.2 percent for the headline FD PPI and 3.0 percent for the core. In the seventh wave, continuing risk aversion caused reversal of carry trades into commodity exposures with annual equivalent headline inflation of minus 2.4 percent in Jun-Jul 2012 while core FD PPI inflation was at annual equivalent minus 1.2 percent. In the eighth wave, relaxed risk aversion because of the announcement of the impaired bond buying program or Outright Monetary Transactions (OMT) of the European Central Bank (https://www.ecb.europa.eu/press/pr/date/2012/html/pr120906_1.en.html) induced carry trades that drove annual equivalent inflation of final demand producer prices of the United States at 6.2 percent in Aug-Sep 2012 and 1.2 percent in the core index. In the ninth wave, renewed risk aversion caused annual equivalent inflation of 0.8 percent in Oct 2011-Dec 2012 in the headline index and 2.8 percent in the core index. In the tenth wave, annual equivalent inflation was 3.0 percent in the headline index in Jan-Feb 2013 and 0.6 percent in the core index. In the eleventh wave, annual equivalent price change was minus 1.2 percent in Mar-Apr 2013 and 2.4 percent for the core index. In the twelfth wave, annual equivalent inflation returned at 1.8 percent in May-Aug 2013 and 1.6 percent in the core index. In the thirteenth wave, portfolio reallocations away from commodities and into equities reversed commodity carry trade with annual equivalent inflation of 1.6 percent in Sep-Nov 2013 in the headline FD PPI and 2.0 percent in the core. In the fourteenth wave, annual equivalent inflation was 2.4 percent annual equivalent for the headline index in Dec 2013-Feb 2014 and 1.6 percent for the core index. In the fifteenth wave, annual equivalent inflation increased to 2.4 percent in the headline FD PPI and 2.7 percent in the core in Mar-Jul 2014. In the sixteenth wave, annual equivalent inflation was minus 1.2 percent for the headline FD index and minus 0.6 percent for the core FD index in Aug-Sep 2014. In the seventeenth wave, annual equivalent inflation was 2.4 percent for the headline FD and 4.9 percent for the core FD in Oct 2014. In the eighteenth wave, annual equivalent inflation was minus 3.0 percent for the headline FDI and 1.2 percent for the core in Nov-Dec 2014. In the nineteenth wave, annual equivalent inflation was minus 6.4 percent for the general index and minus 2.4 percent for the core in Jan-Feb 2015. In the twentieth wave, annual equivalent inflation was 2.4 percent for the general index in Mar 2015 and 1.2 percent for the core. In the twenty-first wave, final demand prices decreased at annual equivalent 2.4 percent for the headline index in Apr 2015 and changed at 0.0 percent for the core index. In the twenty-second wave, annual equivalent inflation returned at 3.7 percent for the headline index in May-Jul 2015 and at 2.4 percent for the core index. In the twenty-third wave, the headline final demand index fell at 2.4 percent annual equivalent in Aug 2015 and the core changed at 0.0 percent annual equivalent. In the twenty-fourth wave, FD prices fell at annual equivalent 4.1 percent in Sep-Oct 2015. In the twenty-fifth wave, FD prices increased at 1.2 percent annual equivalent in Nov 2015. In the twenty-sixth wave, FD prices decreased at 1.2 percent annual equivalent in Dec 2015. In the twenty-seventh wave, FD prices increased at 4.9 percent annual equivalent in Jan 2016 and the core FD increased at 6.2 percent. In the twenty-eighth wave, FD prices fell at annual equivalent 1.8 percent in Feb-Mar 2016 while the core decreased at 0.6 percent. In the twenty-ninth wave, FD prices increased at 3.7 percent annual equivalent in Apr-Jun 2016 and core FD increased at 2.4 percent. In the thirtieth wave, final demand prices decreased at 1.2 percent in annual equivalent in Jul 2016 while the core decreased at 1.2 percent. In the thirty-first wave, final demand prices decreased at annual equivalent 2.4 percent in Aug 2016 and the core changed at 0.0 percent. In the thirty-second wave, final demand prices increased at annual equivalent 4.9 percent in Sep 2016 while core final demand increased at 2.4 percent. In the thirty-third wave, final demand prices increased at 2.4 percent and core final demand prices increased at 1.2 percent in Oct 2016. In the thirty-fourth wave, final demand producer prices increased at 3.0 percent annual equivalent in Nov-Dec 2016 while the core increased at 3.0 percent. In the thirty-fifth wave, final demand producer prices increased at 4.9 percent in Jan 2017 while core prices increased at 3.7 percent. In the thirty-sixth wave, final demand prices changed at 0.0 percent annual equivalent in Feb 2017 while the core index decreased at 1.2 percent. In the thirty-seventh wave, final demand prices increased at 2.4 percent annual equivalent in Mar 2017 while the core index increased at 2.4 percent. In the thirty-eighth wave, final demand prices increased at 4.9 percent in Apr 2017 while the core increased at 4.9 percent. In the thirty-ninth wave, final demand prices increased at annual equivalent 0.4 percent in May-Jun 2017 while core prices increased at 1.8 percent. In the fortieth wave, final demand prices increased at 1.2 percent annual equivalent in Jul 2017 while core prices increased at 2.4 percent. In the forty-first wave, final demand prices increased at 4.9 percent annual equivalent in Aug-Nov 2017 while core prices increased at 4.1 percent. In the forty-second wave, final demand prices changed at annual equivalent 0.0 percent in Dec 2017 while core prices changed at 0.0 percent. In the forty-third wave, final demand prices increased at annual equivalent 4.1 percent in Jan-Mar 2018 while core prices increased at 4.1 percent. In the forty-fourth wave, final demand prices increased at 3.2 percent in Apr-Jun 2018 while core prices increased at 3.2 percent. In the forty-fifth wave, final demand prices increased at 1.2 percent in Jul-Aug 2018 while core prices increased at 1.2 percent. In the forty-sixth wave, final demand prices increased at 5.5 percent annual equivalent in Sep-Oct 2018 while core prices increased at 4.3 percent. In the forty-seventh wave, final demand prices decreased at 1.2 percent annual equivalent in Nov 2018 while core prices increased at 2.4 percent. In the forty-eighth wave, final demand prices decreased at 2.4 percent annual equivalent in Dec 2018-Jan 2019 while core prices increased at 1.2 percent. In the forty-ninth wave, final demand prices increased at annual equivalent 4.1 percent in Feb-Apr 2019 while core prices increased at 2.8 percent. In the fiftieth wave, final demand prices increased at 2.4 percent in May 2019 while core prices changed at 2.4 percent. In the fifty-first wave, final demand prices increased at annual equivalent 0.8 percent in Jun-Aug 2019 while core prices increased at 2.0 percent. In the fifty-second wave, final demand prices decreased at annual equivalent 3.5 percent in Sep 2019 while core prices decreased at 2.4 percent. In the fifty-third wave, final demand prices increased at 1.2 percent in Oct-Nov 2019 while core prices decreased at 0.6 percent. In the fifty-fourth wave, final demand prices increased at annual equivalent 4.3 percent in Dec 2019-Jan 2020 while core prices increased at 4.3 percent. In the fifty-fifth wave, final demand prices decreased at annual equivalent 8.1 percent in Feb-Apr 2020 while core prices decreased at 1.6 percent. It is almost impossible to forecast PPI inflation and its relation to CPI inflation. “Inflation surprise” by monetary policy could be proposed to climb along a downward sloping Phillips curve, resulting in higher inflation but lower unemployment (see Kydland and Prescott 1977, Barro and Gordon 1983 and past comments of this blog http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html). The architects of monetary policy would require superior inflation forecasting ability compared to forecasting naivety by everybody else. In practice, we are all naïve in forecasting inflation and other economic variables and events.

Table I-6B, US, Headline and Core Final Demand Producer Price Inflation Monthly SA and 12-Month NSA ∆%

	Final Demand SA Month	Final Demand NSA 12 months	Final Demand Core SA Month	Final Demand Core NSA 12 months
Apr 2020	-1.3	-1.2	-0.3	0.6
Mar	-0.2	0.7	0.2	1.4
Feb	-0.6	1.3	-0.3	1.4
AE ∆% Feb-Apr	-8.1		-1.6
Jan	0.4	2.1	0.4	1.7
Dec 2019	0.3	1.4	0.3	1.3
AE ∆% Dec-Jan	4.3		4.3
Nov	-0.1	1.0	-0.3	1.2
Oct	0.3	1.0	0.2	1.6
AE ∆% Oct-Nov	1.2		-0.6
Sep	-0.3	1.5	-0.2	2.0
AE ∆% Sep	-3.5		-2.4
Aug	0.1	1.9	0.3	2.3
Jul	0.3	1.6	0.2	2.2
Jun	-0.2	1.6	0.0	2.2
AE ∆% Jun-Aug	0.8		2.0
May	0.2	2.1	0.2	2.4
AE ∆% May	2.4		2.4
Apr	0.4	2.4	0.4	2.5
Mar	0.4	2.0	0.1	2.3
Feb	0.2	1.9	0.2	2.5
AE ∆% Feb-Apr	4.1		2.8
Jan	-0.3	1.9	0.0	2.6
Dec 2018	-0.1	2.6	0.2	2.9
AE ∆% Dec-Jan	-2.4		1.2
Nov	-0.1	2.6	0.2	2.7
AE ∆% Nov	-1.2		2.4
Oct	0.7	3.1	0.5	2.7
Sep	0.2	2.7	0.2	2.6
AE ∆% Sep-Oct	5.5		4.3
Aug	0.0	3.0	0.0	2.6
Jul	0.2	3.4	0.2	2.8
AE ∆% Jul-Aug	1.2		1.2
Jun	0.3	3.3	0.3	2.7
May	0.4	3.1	0.3	2.4
Apr	0.1	2.7	0.2	2.4
AE ∆% Apr-Jun	3.2		3.2
Mar	0.3	2.9	0.3	2.7
Feb	0.3	2.8	0.3	2.5
Jan	0.4	2.6	0.4	2.2
AE ∆% Jan-Mar	4.1		4.1
Dec 2017	0.0	2.5	0.0	2.2
AE ∆% Dec	0.0		0.0
Nov	0.4	3.0	0.2	2.3
Oct	0.4	2.8	0.4	2.4
Sep	0.4	2.6	0.2	2.2
Aug	0.4	2.4	0.2	2.2
AE ∆% Aug-Nov	4.9		4.1
Jul	0.1	2.0	0.2	1.9
AE ∆% Jul	1.2		2.4
Jun	0.0	1.9	0.0	1.8
May	0.1	2.3	0.3	2.0
AE ∆% May-Jun	0.4		1.8
Apr	0.4	2.5	0.4	1.9
AE ∆% Apr	4.9		4.9
Mar	0.2	2.2	0.2	1.5
AE ∆% Mar	2.4		2.4
Feb	0.0	2.0	-0.1	1.3
AE ∆% Feb	0.0		-1.2
Jan	0.4	1.7	0.3	1.4
AE ∆% Jan	4.9		3.7
Dec 2016	0.3	1.7	0.2	1.7
Nov	0.2	1.3	0.3	1.7
AE ∆% Nov-Dec	3.0		3.0
Oct	0.2	1.1	0.1	1.5
AE ∆% Oct	2.4		1.2
Sep	0.4	0.6	0.2	1.2
AE ∆% Sep	4.9		2.4
Aug	-0.2	0.0	0.0	1.0
AE ∆% Aug	-2.4		0.0
July	-0.1	0.0	-0.1	0.9
AE ∆% Jul	-1.2		-1.2
Jun	0.5	0.2	0.3	1.2
May	0.3	0.0	0.1	1.2
Apr	0.1	0.2	0.2	1.1
AE ∆% Apr-Jun	3.7		2.4
Mar	0.0	-0.1	-0.1	1.1
Feb	-0.3	0.1	0.0	1.3
AE ∆% Mar-Feb	-1.8		-0.6
Jan	0.4	0.0	0.5	0.8
AE ∆% Jan	4.9		6.2
Dec 2015	-0.1	-1.1	0.2	0.2
AE ∆% Dec	-1.2		2.4
Nov	0.1	-1.3	0.1	0.3
AE ∆% Nov	1.2		1.2
Oct	-0.3	-1.4	-0.2	0.2
Sep	-0.4	-1.1	-0.1	0.7
AE ∆% Sep-Oct	-4.1		-1.8
Aug	-0.2	-1.0	0.0	0.6
AE ∆% Aug	-2.4		0.0
Jul	0.2	-0.7	0.2	0.8
Jun	0.3	-0.5	0.3	1.1
May	0.4	-0.8	0.1	0.7
AE ∆% May-Jul	3.7		2.4
Apr	-0.2	-1.1	0.0	1.0
AE ∆% Apr	-2.4		0.0
Mar	0.2	-0.9	0.1	0.8
AE ∆% Mar	2.4		1.2
Feb	-0.5	-0.5	-0.4	1.0
Jan	-0.6	0.0	0.0	1.7
AE ∆% Jan-Feb	-6.4		-2.4
Dec 2014	-0.3	0.9	0.2	2.0
Nov	-0.2	1.3	0.0	1.7
AE ∆% Nov-Dec	-3.0		1.2
Oct	0.2	1.5	0.4	1.9
AE ∆% Oct	2.4		4.9
Sep	-0.2	1.6	-0.1	1.6
Aug	0.0	1.9	0.0	1.9
AE ∆% Aug-Sep	-1.2		-0.6
Jul	0.4	1.9	0.5	1.9
Jun	-0.1	1.8	0.0	1.6
May	0.2	2.1	0.3	2.1
Apr	0.1	1.8	0.0	1.5
Mar	0.4	1.6	0.3	1.6
AE ∆% Mar-Jul	2.4		2.7
Feb	0.2	1.2	0.2	1.6
Jan	0.3	1.3	0.2	1.4
Dec 2013	0.1	1.2	0.0	1.2
AE ∆% Dec-Feb	2.4		1.6
Nov	0.2	1.1	0.2	1.4
Oct	0.2	1.3	0.2	1.7
Sep	0.0	1.1	0.1	1.6
AE ∆% Sep-Nov	1.6		2.0
Aug	0.1	1.7	0.0	1.8
Jul	0.2	2.0	0.3	1.7
Jun	0.4	1.7	0.4	1.3
May	-0.1	0.9	-0.3	0.9
AE ∆% May-Aug	1.8		1.6
Apr	-0.2	0.9	0.2	1.3
Mar	0.0	1.3	0.2	1.5
AE ∆% Mar-Apr	-1.2		2.4
Feb	0.2	1.6	0.0	1.4
Jan	0.3	1.6	0.1	1.7
AE ∆% Jan-Feb	3.0		0.6
Dec 2012	0.0	1.9	0.1	2.0
Nov	0.1	1.7	0.5	1.8
Oct	0.1	1.9	0.1	1.6
AE ∆% Oct-Dec	0.8		2.8
Sep	0.7	1.5	0.3	1.4
Aug	0.3	1.2	-0.1	1.2
AE ∆% Aug-Sep	6.2		1.2
Jul	-0.1	1.0	-0.1	1.7
Jun	-0.3	1.3	-0.1	1.9
AE ∆% Jun-Jul	-2.4		-1.2
May	-0.1	1.6	0.2	2.2
Apr	0.3	2.0	0.3	2.1
AE ∆% Apr-May	1.2		3.0
Mar	0.2	2.4	0.2	2.3
Feb	0.3	2.8	0.3	2.6
Jan	0.4	3.1	0.4	2.5
AE ∆% Jan-Mar	3.7		3.7
Dec 2011	-0.1	3.2	0.0	2.6
Nov	0.3	3.7	0.2	2.7
Oct	-0.4	3.7	-0.3	2.7
AE ∆% Oct-Dec	-0.8		-0.4
Sep	0.4	4.5	0.2	2.9
Aug	0.2	4.4	0.4	3.0
Jul	0.2	4.5	0.2	2.7
AE ∆% Jul-Sep	3.2		3.2
Jun	0.1	4.3	0.2	2.6
May	0.3	4.2	0.2	2.3
AE ∆% May-Jun	2.4		2.4
Apr	0.5	4.2	0.3	2.5
Mar	0.7	4.0	0.5	NA
Feb	0.6	3.3	0.3	NA
Jan	0.6	2.4	0.4	NA
AE ∆% Jan-Apr	7.4		4.6
Dec 2010	0.3	2.8	0.1	NA
Nov	0.3	2.6	0.1	NA
Oct	0.4	NA	0.1	NA
Sep	0.3	NA	0.2	NA
Aug	0.2	NA	0.0	NA
Jul	0.2	NA	0.2	NA
Jun	-0.2	NA	-0.1	NA
May	0.2	NA	0.3	NA
Apr	0.3	NA	NA	NA
Mar	0.1	NA	NA	NA
Feb	-0.2	NA	NA	NA
Jan	0.9	NA	NA	NA
Dec 2009	0.1

Note: Core: excluding food and energy; AE: annual equivalent

Source: US Bureau of Labor Statistics https://www.bls.gov/ppi/data.htm

Chart I-24B provides the FD PPI NSA from 2009 to 2020. There is persistent inflation with periodic declines in inflation waves similar to those worldwide.

Chart I-24B, US, Final Demand Producer Price Index, NSA, 2009-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

Twelve-month percentage changes of the FD PPI from 2010 to 2020 are in Chart I-25B. There are fluctuations in the rates with evident trend of decline to more subdued inflation. Reallocations of investment portfolios of risk financial assets from commodities to stocks explain much lower FD PPI inflation.

Chart I-25B, US, Final Demand Producer Price Index, 12-Month Percentage Change NSA, 2010-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

The core FD PPI NSA is in Chart I-26B. The behavior is similar to the headline index but with less fluctuation.

Chart I-26B, US, Final Demand Producer Price Index Excluding Food and Energy, NSA, 2009-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

Percentage changes in 12 months of the core FD PPI are in Chart I-27B. There are fluctuations in 12-month percentage changes but with evident declining trend to more moderate inflation.

Chart I-27B, US, Final Demand Producer Price Index Excluding Food and Energy, 12-Month Percentage Change, NSA, 2010-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

The energy FD PPI NSA is in Chart I-28B. The index increased during the reposition of carry trades after the discovery of lack of toxic assets in banks that caused flight away from risk financial assets into government obligations of the US (Cochrane and Zingales 2009). Alternating risk aversion and appetite with reallocations among classes of risk financial assets explain the behavior of the index after late 2010.

Chart I-28B, US, Final Demand Energy Producer Price Index, NSA, 2009-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

Twelve-month percentage changes of the FD energy PPI are in Chart I-29B. Rates moderated from late 2010 to the present. There are multiple negative rates. Investors create and reverse carry trades from zero interest rates to derivatives of commodities in accordance with relative risk evaluations of classes of risk financial assets.

Chart I-29B, US, Final Demand Energy Producer Price Index, 12-Month Percentage Change, NSA, 2010-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

Table I-7 provides 12-month percentage changes of the CPI all items, CPI core and CPI housing from 2001 to 2019. There is no evidence in these data supporting symmetric inflation targets that would only induce greater instability in inflation, interest rates and financial markets. Unconventional monetary policy drives wide swings in allocations of positions into risk financial assets that generate instability instead of intended pursuit of prosperity without inflation. There is insufficient knowledge and imperfect tools to maintain the gap of actual relative to potential output constantly at zero while restraining inflation in an open interval (1.99, 2.0). Symmetric targets appear to have been abandoned in a favor of a self-imposed single jobs mandate of easing

monetary policy even with the economy growing at or close to potential output.

Table I-7, CPI All Items, CPI Core and CPI Housing, 12-Month Percentage Change, NSA 2001-2020

Apr	CPI All Items	CPI Core ex Food and Energy	CPI Housing
2020	0.3	1.4	2.2
2019	2.0	2.1	2.9
2018	2.5	2.1	3.0
2017	2.2	1.9	3.2
2016	1.1	2.1	2.1
2015	-0.2	1.8	2.2
2014	2.0	1.8	2.5
2013	1.1	1.7	1.9
2012	2.3	2.3	1.7
2011	3.2	1.3	1.0
2010	2.2	0.9	-0.6
2009	-0.7	1.9	1.0
2008	3.9	2.3	3.0
2007	2.6	2.3	3.4
2006	3.5	2.3	3.8
2005	3.5	2.2	3.2
2004	2.3	1.8	2.3
2003	2.2	1.5	2.6
2002	1.6	2.5	2.3
2001	3.3	2.6	4.5

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/

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