Steven Engelhardt

Looking at these policymakers’ reactions in their entirety leads to the conclusion that this Fed is willing to react to large falls in asset prices that it feels are unwarranted by fundamentals. This is a change that I applaud. I only hope that this new approach is not asymmetrical and that US central bankers will see the need to respond to large increases in equity, fixed-income, and housing prices when they inevitably come.

Cecchetti, Stephen. “Bernanke’s Fed shows that it can be nimble.” The Financial Times 24 January 2008.

I predict the Fed will take up a symmetric approach to monetary policy at the same time the BLS takes up a symmetric approach to quality adjustment¹ when calculating CPI. In short, never.

For example, how much has inflation increased due to tasteless tomatoes or how much modern air travel resembles steerage?

I have no problem with quality adjustment in theory, but intellectual honesty demands both symmetry and, for proper comparison, a recalculation of past CPI numbers with quality adjustment taken into account. However, given the impracticality of the latter, any comparison of post-quality adjustment to pre-quality adjustment CPI figures should be performed with a giant asterisk.

And don’t get me started on intra-category substitution. Inflation should compare the price of beef to the price of beef, not the price of beef to the price of today’s cheapest meat.