The Fed has been above its inflation target for 54 straight months.
Janet Yellen Flashback Highlights
- In a 2017 interview with CNBC, then Fed Chair Janet Yellen called the Fed’s failure to lift inflation to 2% her “single disappointment” and “only regret” as Fed Chair.
- “I consider it an important priority to make sure that inflation doesn’t chronically undershoot our 2 percent objective,” said Yellen to CNBC.
- In 2021, amidst debates over large pandemic relief packages, then Treasury Secretary under President Biden, said the risk of inflation was “small and manageable.”
- Speaking with CNBC in January of 2025, Yellen acknowledged that stimulus spending may have contributed “a little bit” to inflation but attributed the majority of the price spike to pandemic-related supply issues.
Fed’s Inflation Target
The Federal Reserve’s inflation target is 2 percent over the longer run, measured by the annual change in the Personal Consumption Expenditures (PCE) price index.
This target is considered consistent with the Fed’s mandate for maximum employment and price stability. The Fed uses a Flexible Average Inflation Targeting (FAIT) framework, which allows inflation to temporarily deviate from the 2% target as long as it averages 2% over time.
Temporary Deviation
Inflation as measured by 4 indexes has been above target since April of 2021, a mere 53 consecutive months (54 months for its preferred measure, core PCE).
That’s 4.33 years of temporary.
The Illusion of Precision
The Fed has reacted to this by discussing new “inflation target ranges” rather than a fixed target of 2.0 percent.
Reuters reports Fed Could Abandon ‘Illusion of Precision’ With Inflation Range.
one potential alternative to the current target is an inflation range, which some Fed officials have nodded to recently, most notably Atlanta Fed President Raphael Bostic.
In an interview with George Mason University senior research fellow David Beckworth on the Macro Musings podcast this week, Bostic said he would be open to a range in the future.
“Sometimes there’s this illusion of precision, that we can move inflation to the third decimal place. I don’t really think that’s real,” Bostic said.
A Good Start
Bostic said that 1.75% to 2.25% would be a good start.
By that new flexible range, the Fed has only been over target for 52 straight months, down from 53.
Using Core CPI as the Fed’s preferred measure, the Fed has been over target for 52 straight months, down from 54. Hooray!
This now doubt would erase the “illusion of precision”.
Sarcasm aside, if the Fed starts down this path, expect the Fed to keep boosting the upper end of the range.
Pack of Groupthink Charlatans
Yellen looks particularly bad because she made precise statements. But she’s really no worse than any of them.
Former Fed Chair Ben Bernanke launched QE madness to make sure deflation never happens again.
The entire pack of fools thought inflation was transitory all the way to March of 2022.
Recall the Powell-led Fed’s first interest rate hike occurred on March 16, 2022, when the Fed hiked rates to a range of 0.25 percent to 0.50 percent.
It’s instructive to note how high inflation was when the Fed finally reacted.
March 2022 Year-Over-Year Inflation
- CPI: 8.54 percent
- Core CPI: 6.47 percent
- PCE: 6.93 percent
- Core PCE: 5.59 percent
Risk Management Insurance
With inflation the hottest since the mid-1970s, the asymmetric Fed could only muster a measly quarter-point hike. And it was still conducting QE to drive down long-term rates.
The Fed is always slow to hike and fast to cut. Currently, core PCE is 2.91 percent, and the Fed is cutting.
“Think of this as a risk-management cut. There are no risk-free paths. It’s not obvious what to do,” said Powell on September 17 FOMC press conference.
Risk-management insurance is always in favor or lower rates.
The Fundamental Problem
The fundamental problem is the Fed is clueless about inflation.
The Fed only looks at poor measures of consumer inflation while ignoring obvious asset bubbles.
The Illusion of Low Inflation
On average, people spend more money eating out than at home. The BLS has the percentages reversed. And it does not factor in tip inflation at all.
Neither houses, nor property taxes, nor homeowner’s insurance are in the CPI or PCE.
The Fed ignored housing prices. And of course when housing prices rise so do property taxes and homeowner’s insurance.
Our home insurance costs jumped $2,000 a year for two consecutive years (then we switched to a different insurer).
Those in a flood or fire zones likely fared worse.
Consumer Inflation vs Inflation
The Fed does not count things related to home ownership as “consumer inflation” on the basis that homes are a capital expense, not a consumer expense.
So what? Does inflation matter or just consumer inflation?
That’s the key question, and the Fed is clueless. Moreover, the Fed cannot grasp the idea that deflation is a good thing.
BIS Deflation Study
The Bank of International Settlements (BIS) did a historical study and found routine price deflation was not any problem at all.
“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.
For a discussion of the BIS study, please see Historical Perspective on CPI Deflations
Concerns about deflation – falling prices of goods and services – are rooted in the view that it is very costly. We test the historical link between output growth and deflation in a sample covering 140 years for up to 38 economies. The evidence suggests that this link is weak and derives largely from the Great Depression.
Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive.
Once we control for persistent asset price deflations and country-specific average changes in growth rates over the sample periods, persistent goods and services (CPI ) deflations do not appear to be linked in a statistically significant way with slower growth even in the interwar period.
Asset Bubble Deflation
It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.
Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive build up of unproductive debt and asset bubbles that eventually collapse.
Fedthink! The Fed Is Incompetent by Design
In case you missed it, please see Fedthink! The Fed Is Incompetent by Design and Can’t Be Fixed
Is the Fed playing politics? Does the Fed know what it’s doing at all?
We are trapped in “Fedthink”, especially the nonsensical proposition that two percent inflation is a good thing despite the fact that the Fed is clueless on how to measure inflation in the first place.
Dear Fed, Please Shut Up
On December 24, 2024 I commented Dear Fed, Please Shut Up Already, Stop the Forward Guidance
Danielle DiMartino Booth claims the Fed should be cutting more, not less. I have a different suggestion.
Since the Fed has no idea where rates should be, it should stop forward guidance.
More accurately, there should not be a Fed at all.
The Next Fed Chair
On July 9, 2025, I threw my hat in the ring: I Officially Announce my Availability to Become the Next Fed Chair
I throw my name into the ring. And I have a plan for what needs to be done. Does anyone else have a plan?
Mish’s 15-Point Fed Plan
- Explain to the nation why we don’t need a Fed and how independent central banks have created boom-bust cycles of increasing amplitude over time. The main corollary is history shows the one thing worse than independent central banks is a central bank run by politicians, frequently ending in hyperinflation.
- Surround myself with qualified insiders who understand the Fed but also believe in the mission to end the Fed.
- Stop paying interest on reserves, phased in over 18 months.
- Wind down the Fed’s balance sheet totally in 2-3 years.
- Require that assets available on demand such as checking and savings accounts are truly available on demand. That means demand deposits are parked in overnight US treasuries. This would be phased in over two years. As a result, we would have genuine safekeeping banks.
Click the above link for more details of my plan to end the Fed.
And in case you missed it, please see Is Homeowners Insurance Understated in the CPI? Shop Around!
Our Insurance went up by $2,000. Then another $2,000. Here’s our story.
Don’t worry, the Fed does not count that as inflation. So, it must not matter.
My homeowners insurance has gone to the moon the past three years. Does that count as inflation? And what about the stock market?
How is price stability forever inflation at 2%?
Jensen Huang gave Sam Altman $100 million dollars to build “Mr Know All” AI with
NVDA chips. Sam Altman keeps NVDA chips prices artificially high, inelastic. When SF VC give
u a $100 million dollars u have to hire people, grow profitability, grow market share and productivity, make it a 1B co. I u don’t ==> f**k u. The market is fully committed to AI. Data centers and energy sources investments might reach a $500B, but productivity lags behind. Instead of being fully committed to AI it should be an option. Smarter, smaller Innovative co, will rise from the underground, buy their deflated asset for 20 cents/ dollar, find new customers, serve them at deflated prices, break the giants, according to Safra Catz.
And their claimed inflation figures are, of course, low ball garbage.
Since Q3 2008, in the last 17 years, productivity has risen from 83 to 116. 33/17 x 1/83 = 2.3%/year.
5 generations of inflation has completely changed our culture.
Labor productivity popped up after covid (WFH) to 111 in Q3 2020. It dropped after Q4 2021. Since Q2 2022 productivity was rising from 109 to 117. In the last 5 years, since Q3 2020, productivity was (6/5)/111 = 1.2/111 = 1%/year. So, since Q3 2020, for 5 years, productivity is below inflation.
Prof Spencer: is productivity above the CPI. Do u trust the CPI ???
Productivity reduce prices. Productivity cause deflation. Productivity benefit the poor and the middle class. IBM 370 from the 70’s vs today laptops for $300. Jerry Steinfeld’s Motorola for $3,000 vs today cell phones. Lexus from the late 90’s vs today Lexus. If we stop eating junk food productivity will rise. Prices will fall. AI might increase productivity. Small and midcap co profitability will rise. The Mag7 profitability will fall. If inflation is 3% and productivity is 5% ==> prosperity lifts all wages. Real income will rise. If productivity is 2% only the rich benefit from inflation. If that cont for a long time it will cause recession.
If that continues for a long time methinks it will cause civil wars.
Easy to see why Congress passed the Federal Reserve Reform Act of 1977. Persistently high inflation back in 1977 too!
The Federal Reserve Reform Act of 1977, which is still the law, says:
There has not been a single year since 2007 that the Fed has met all 3 goals.
Missing from 2007-2015: Maximum employment
Missing from 2009-2023: Moderate long-term interest rates
Missing from 2021-present: Stable Prices
Nor have they “maintained long-run growth of monetary and credit aggregates commensurate with the economy’s long run potential to increase production.”
P.S. It’s a lot easier to measure “stable prices” when it’s correctly defined as “zero inflation”.
Been pondering. Comments are welcome. Recessions used to be a normal part of the business cycle. Eliminating non competitive businesses. Somewhere in the last forty years it got to be recessions are bad. Throw gov spending on infrastructure projects and such. Then failing to recover that cost in good times.
Always growth maybe thats why we dont see five percent growth any more. Ah remember zombie corps
According to gold (Not even close).
Gold continues to roll and is at $3,888.80 as I type. Mining stocks are absolutely rocking it.
Kinda wish I’d bought more physical, but the stocks are super liquid and pay dividends.
The Fed has lost investors faith, gold has continued to shine and gained credibility.
40% of investor funds have no exposure to gold. My father told me that the proper investment exposure is 10%. It is now less than 1% for most.
$1 trillion in new debt every 150 daze will support far higher profits in gold…
Brazil nuts today: $25/lb.
I blame Anthony Fauci.
“The fundamental problem is the Fed is clueless about inflation.”
This is not an honest statement. Inflation refers to excessive money creation. The Fed is directly responsible for this as they set bank reserve requirements to ZERO.
In other words, the national banks that own and (by definition) control the Fed can, and ARE, creating money in limitless amounts and gifting it to themselves and their friends.
Why are you paying interest to a bunch of criminals (US Constitution Article 1, Section 10) who created out of nothing the (illegal and unlawful) money they loaned you?
Because you are a traitor to yourself and your country.
There are a dozen valid definitions of inflation.
Total bank credit systemwide, for all commercial banks, is measured, tracked and lightly regulated by the Fed. The data show that such Credit is NOT being created in “limitless” amounts. At least not by the banks.
The main fountain of credit production is the U.S. Treasury.
If you have evidence of the fabled “magic money printers” in the Federal Government, I’d love to hear about that, though.
The stock market.
I rest my case.
“The main fountain of credit production is the U.S. Treasury.”
FALSE.
The Treasury is not creating credit or money. The US Treasury only sells debt, Treasuries, Notes and Bonds. It’s borrowing, not creating credit.
JFK was murdered before he could have the US Treasury issue money WITHOUT going into debt to the banks.
Cui bono?
The National Debt is increasing faster than Total Bank Credit (Federal Reserve H.8 report).
While the Treasury is not itself creating credit, it is borrowing money that IS being created by the banking system.
Federal borrowing accounts for more-than-all of the total credit created in the past year.
It seems that everyone else is paying down debt, or borrowing from shadow sources not accounted for by the Federal Reserve.
Paying Interest on Reserve Balances: It’s More Significant than You Think – Scott Fullwiler Date Written: December 1, 2004
See Fed Paying Interest on Reserves: “An Old Idea with a New Urgency”
https://www.wsj.com/articles/BL-REB-1411 April 29, 2008 11:02 am ET
Paul Volcker was quoted in the WSJ in 1983 that the Fed: “as a matter of principle favors payment of interest on all reserve balances” … “on rounds of equity”. [sic]
These guys would have flunked a Money and Banking class.
Saver-holders need higher and firmer real rates of interest.
Let the games continue…………unabated.
Shelter is a necessity. Housing is in a bubble that might not burst if the FED continues to validate those assets. What do you think that house prices will fall back to be in line with rents, or that rents will rise until they match the price of new construction?
Rents come from earnings… purchases come from borrowing. If rent is to go up, incomes have to.
Personal earnings have risen, but not nearly at the pace of housing prices.
re “parked overnight in Treasuries”
That turns treasuries into money – highly inflationary considering the volume of Treasuries outstanding.
Re: “The Fed is always slow to hike and fast to cut.”
No, Yellen jacked up rates during a contractionary period, in December 2015.
The FED’s technical staff doesn’t know a debit from a credit. All monetary savings originate within the payment’s system, DDs are just converted to TDs, dollar for dollar.
C_ _ KED
B_ _ KS
At least I can still buy a vowel for $250 after 40 years.
Inflation is only deadly for the unemployed and the retired, and for those who are too cowardly to ask for a raise at work. For the valuable worker with balls, it’s easy to stay in step with the appreciations in the price index.
All inflation really is is a reminder that it’s essential to have valuable assets in this world, such as real estate in important cities. During the 1970s, New York City hit a crisis and an owner of towers sold several of them to the Reichmann family of Toronto. He erroneously assumed that New York was sunk. But New York will always bounce back. The Reichmanns used this capital to fund the growth of their Olympia & York real estate construction corporation.
If you own dividend-paying stocks, or a growth corporation like Amazon in 2010 or Walmart in 1990, you are insulated from inflation. In this world, money is what counts, not love. The average senior citizen man would be better off getting rid of his old wife and pinching his pennies to increase his living standard. Ah. The costs of inflation.
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dark . sport . blog Is my website. Come visit for more of my writings!
Except it’s really a game of musical chairs. If you didn’t already get that high-paying job or own your home or buy stocks before 2024, well, good luck to you. If, however, you’ve been passively enriched by the banksters printing with both hands since 2009, your stocks are up 10x. Given that about 45% don’t own stonks…and a large chunk don’t own a home, well I’m guessing Cyborg One is on the before-2021-inflation side of the timeline because inflation is hitting my nephews, nieces and bonus children from all sides and prevents them from this insulation you claim. New polls show a large majority view the American Dream is out of reach and the amount needed now is, gulp, $5 Million. Of course that’s crazy but that’s what they answered in the polls.
Inflation is pernicious, it is not something that folks can plan for as its rate is obfuscated by the whims of an unelected central bank and cleverly undercounted at their behest. And a complicit Congress that needs their cheap money to pay for all their giveaways to stay in power. Imagine planning on 2% and it’s nowhere near that?
Ya think you’re insulated from inflation. Imagine, and this is tough given it’s been 16 years, stocks cut in half and home prices taking a 2005/6 type haircut…but keep all other prices where they are. Even the employed won’t be insulated.
The hubris of the gentrified monied class created by the banksters since 2009, and in the bubble of 1999-2000 and the housing bubble around 2005 always sounds the same when the bubble has been blown. If, and it’s still an if, this baby pops I can hear the perceived-wealthy immediately clamoring for moar money stimulus to bail out “the economy”–which is to say “please re-inflate my stocks and other assets” because I expected to be insulated with all of my wealth.
There was no reason to lower rates this month. The labor market hasn’t rolled over it only looks a bit smoky. Inflation raging above target for 54 months is THE primary mandate of the fed who only later added labor to make matters worse.
Fed printing and bank lending increase liquidity. There is no inflation without liquidity. Bank assets are up from $18T in Mar 2020 to $24.5T. If productivity lags behind it cannot absorb money printing. It cause inflation. If productivity lags behind for a long time it will harm the economy. It will reduces prosperity. If AI increases
productivity it will bring prosperity.
I agree productivity is the essential variable to prosperity. But:
“If AI increases productivity it will bring prosperity.”
The $64T question is, increases prosperity for whom? And at the expense of what?
So if no one can buy anything because all they can afford is food and energy they’ll think it’s time to cut rates. Seems pretty stupid.
The secret mandate of the Fed is to deflate the debt of their cronies.
The Fed is factoring in/anticipating asset price collapse during the coming substantial recession …
The Timing of the Rhyming
Mon, September 29, 2025. .. (closing equity peak valuation 23 Sept 2025)
Alexandra Semenova in Bloomberg … Wall Street Warms to a New Normal of Sky-High Equity Valuations …
… near the equity asset peak valuation of a US 1982-2026 13/33 year :: x/2.5x fractal cycle …
… October 16, 1929 (closing peak equity valuation 3 Sept 1929 …)
Irving Fisher in the New York Times “stock prices have reached ‘what looks like a permanently high plateau.”
… near the equity asset peak valuation of a US 1807-1932 35/90 year :: x/2.5x fractal cycle
You stated the fed is clueless. They are not, they are malevolent. This is a concerted deliberate effort to deceive the electorate to the benefit of the govt and their wealthy contributors.
This is the correct statement. Transfer of wealth with insider info.
Everyone else, play the game…get burned. Play the game…get burned.
Over the long run, no one can forecast anything. I forecasted parts for a high tech company and we were ALL over the freaking place, month to month and quarter to quarter. It as a nightmare of overages of shortages.
Now consider this bullshit that the FED spews..complete with Political leanings, admin to admin. We will never know what to believe from them.
End of rant.
I get your point, Mish; what is the Fed doing now (and in the recent past) about inflation?
But to be fair (and honest), for the past 16 years, annual inflation (as measured by the CPI) has been under the target of 2% for 8 years and over 2% for 8 years: https://fred.stlouisfed.org/series/FPCPITOTLZGUSA
That’s close to ‘balanced’ in the longer view – especially for a macroeconomic variable that is not under its direct control and under which time period the US experienced the Great Recession and the COVID shock
But, the bigger picture is that VERY few people know that it is ROC inflation rate, right, MISH?
Using your data, the Fed’s CPI data, which we already know undercounts consumer inflation for all the reasons Mish has pointed out: Since 1966 – 11 years below a 2% target, 47 years above target. Seems out of balance actually. Only once did CPI decrease, a whopping 0.35% and it took a massive financial crisis to see basically no inflation.
The angst, uncertainty and damage of inflation has occurred because compounded, from start of 2021 through end of 2024 it’s + 21%. That’s not an easily digestible amount of inflation unless you own stocks and/or real estate.
“We will not monetize”, said a famous banking cartel spokesman.
Non-stop monetization ever since. Blowout fiscal deficits (not even counting what they don’t count) funded by magic.
All hail magic!
“Any sufficiently advanced bullshit is indistinguishable from magic.”
– bankster motto?? 😉
Mish, that’s one hell of an article. To be reminded that CPI was @ 8.54% while core had jumped to 6.47% before the Fed finally got past transitory is flabbergasting.
As for Yellen being regretful for not getting CPI up to 2%, how idiotic can this lady be? I think most people would be extremely happy to see inflation stay below 2% for a very long time.
Unfortunately, that’s not likely to happen unless Bernanke’s dream of vanquishing deflation forever is broken by a nasty recession.
Fed QE, huge balance sheets & paying interest on reserves all sit at the nexus of our current inflationary / debt conundrum.
We have real-world evidence of how happy people are without inflation–when Japan went decades with basically no inflation they were measured as one of the happiest populations on earth. A population rich in their culture, homogoneous, and experiencing a very stable price picture allows people to have national pride and plan their lives where their choices dictate their life not the choices of others like bankers or a large swath of invaders altering their culture.
I’m not historian, but Yellen has to be the worst Fed Chair ever.
She was right at the start of the DEI craze.