On July 29, the US Bureau of Economic Analysis reported the US Personal Consumption Expenditures (PCE) Price Index for the month of June, with the figure seeing the largest 12-month increase since 1982 On the same day, Stanford University senior fellow at the Hoover Institution and economics professor John Cochrane said the Federal Reserve should raise rates above 9% to control inflation.
The PCE price index rose 4.8 percent from a year ago
The US economy continues to look gloomy every time a new economic report or data is released to the general public. In mid-July, the consumer price index (CPI) from the Bureau of Labor Statistics report was published, revealing that June CPI data reflected a record high increase of 9.1% year-over-year. On July 27, the US Federal Reserve road the fed funds rate by 75 basis points (bps) to help curb red-hot inflation.
Two days later, the Bureau of Economic Analysis (BEA) published the personal consumption expenditure index data also known as PCE. The PCE index saw the biggest jump in 12 months with a 6.8% rise in June, an increase not seen since January 1982.
“Compared to the same month a year ago, the June PCE price index increased by 6.8 percent,” details the BEA report. “Prices of goods increased by 10.4 percent and prices of services increased by 4.9 percent. Food prices increased 11.2 percent and energy prices increased 43.5 percent. Excluding food and energy, the PCE price index increased 4.8 percent compared to the previous year”, state the records of the government entity. The BEA is scheduled to publish the results of the annual update of the National Economic Accounts on September 29.
Stanford University economics professor believes a gold standard or Bitcoin won’t work
On the same day, economist John Cochrane made a interview with Kitco’s wording and said the US central bank should raise interest rates above 9%. Cochrane further commented that a gold or bitcoin standard would not be able to control inflation. The Stanford University economics professor said the “consensus view” was that the Fed should raise rates “substantially above” the 9% region.
“That means that right now with 9 percent inflation, economists are talking about 10, 11 or 12 percent interest rates to bring [prices] down,” Cochrane said. “I think the Fed and the markets are counting on a lot of the inflation to go away on its own without interest rates having to go up that much,” the Stanford economist told Kitco News host David Lin.
Lin also asked Cochrane about a gold standard or a bitcoin standard that is used to control inflation. “Sorry, no,” replied the economist. “Under the gold standard, there was a lot of inflation and deflation. 10 or 20 percent ups and downs of inflation and deflation, but each inflation was accompanied by a deflation. Sorry, we’re not going back to gold.” Cochrane believes that the Fed needs to implement a tighter fiscal policy to combat inflationary pressures.
As for a bitcoin standard, Cochrane said it was a horrible idea and insisted that bitcoin (BTC) is “no value”. “That’s a terrible idea,” Cochrane said in his interview with Lin. “In fintech terms, Bitcoin is an attempt to revive gold, something inherently worthless that people only hold onto because it’s rare…Bitcoin is also very poor at transacting itself as it’s very computationally intensive.” Cochrane concluded:
The best answer is that our governments should start executing sober fiscal and monetary policies and pay more attention to keeping inflation under control.
What do you think of the latest PCE data and the opinion of the economist John Cochrane? Do you think that improving fiscal and monetary policies can help control US inflation? Let us know what he thinks on this topic in the comments section below.
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