The consumer price index rose by only 3 percent during the past 12 months. President Biden is taking a victory lap, saying inflation has dropped for 12 months straight. That interpretation is debatable, given the variety of ways inflation is measured. Prices rose more in June than they had in May.
But there’s a clear enough downward trend that the Federal Reserve is already hearing calls to declare its own victory over inflation, rather than continue to raise interest rates until it achieves its stated goal of bringing the inflation rate down to 2 percent. Although the case for relenting is not frivolous, the Fed should stay the course.
Even before the government released the latest inflation number, Mark Zandi, the chief economist at Moody’s Analytics, asked, “Do we want to sacrifice the economy to the altar of the 2% inflation rate?” He suggested that a 3 percent inflation rate might be tolerable.
We should give Zandi props for bringing to mind the closing line of William Jennings Bryan’s 1896 protest against tight monetary policy: “You shall not crucify mankind upon a cross of gold.” But Zandi’s argument has more than rhetorical resonance going for it. The 2 percent goal is arbitrary. A stray remark by a New Zealand official is generally thought to have begun the chain of events that led to the goal becoming orthodoxy for central banks around the world.