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U.S. Fed's focus on "core" inflation raises concerns: report |
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08:08, July 12, 2007 |
As food and energy prices climb across the United States, the Federal Reserve is facing growing criticism for focusing on "core" inflation, which excludes both of those items, as the basis for its interest-rate decisions, the Wall Street Journal reported Wednesday.
Many consumers question whether Fed officials eat or drive, and some economists worry that the Fed is underestimating inflation risks, said the report, adding that even some Fed officials share these concerns.
The report said that the debate has intensified in the past month after new data showed core inflation measured by the Fed's preferred gauge -- the core index of personal-consumption expenditures -- dropped to 1.9 percent in May, below the 2-percent ceiling of some Fed officials' comfort zone.
But including food and energy, inflation was still 2.3 percent.
The Fed believes that because it has little influence over short-run energy prices, shifting monetary policy when those prices push headline inflation up or down could be harmful -- for example, raising rates when gasoline prices rise during the summer driving season, then reversing course in the fall.
The Fed's interest-rate decisions are designed to influence the overall economy over a horizon of one or two years, the report said.
"The Fed is pretty powerless to do something about the price of energy or the price of food," Alan Blinder, a Princeton University economist and former Fed vice chairman, was quoted as saying.
"I don't want to charge the Fed with responsibility for something it can't do," the economist said.
Source: Xinhua
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