Fed Statement

As regular readers know, I watch economics and the Federal Reserve pretty closely. One of my bigger criticisms has been the Fed's reliance on "core" inflation measures, which exclude food and energy vs. real life inflation.The Fed announced today that short term interest rates would stay the same. But they added this to their statement:

"Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures."

Here's my question. If the core inflation rate is the real deal and has improved modestly, and it's under control, why aren't they giving the economy a little pick-me-up with an interest rate cut?

I think the answer is clear. The Fed folks aren't stupid. They routinely use the "core" number for propoganda purposes while they know that those pesky "inflation pressures" really do mean something. My take-away is that the Fed is inching closer to the stagflation conundrum: a slowing economy with excessive increases in prices. If you choke inflation by tighter money you further kill the economy. If you loosen money to help a faltering economy inflation is merely exacerbated.

Glad I'm not Bernanke inheriting the Mess That Greenspan Made.