The Federal Reserve has an inflation problem. No, inflation is not too hot. In fact, it’s too cold. More importantly, the Fed continues to rgue inflation will eventually hit and maintain 2%. But the underlying trend says otherwise.
First, the PCE implicit price deflator is the Fed’s preferred inflation measure (This document from the BEA explains the differences between this and CPI). Let’s begin by looking at the 3, 6 and 12 month moving average of the overall PCE price index.