Inflation Is Trending Down Again, But….

The inflation rate has gone down for the past two months and is now barely above 2 percent. Here’s a chart showing the Consumer Price Index for the past five years:

Given this, should the Fed still be raising interest rates? It’s beginning to look like there’s no real acceleration in inflation at all. Let’s take a look at a longer-term chart that shows both inflation and interest rates:

What you can see in this chart is something you already know: when inflation rises, the Fed responds with higher interest rates and this generally leads to a recession. The main exception to this trend comes in the mid-90s, when the Fed raised interest rates to 6 percent even though inflation was falling.

This doesn’t mean that Fed actions are solely responsible for all recessions. Oil price spikes play a big role. The housing bubble obviously played a huge role in 2008. Still, as a general rule, when inflation rises more than about 2-3 points, the Fed usually responds and helps to tip the economy into recession. Right now, the Fed Funds rate has increased about 2 points over the past two years, which is a historically modest response. If they don’t go much further, I’d guess that their actions so far turn out to be pretty innocuous.¹ And with inflation still well in check, they really have no reason to keep going until they hit a 3 percentage point rise. I sure hope they agree.

¹Assuming some external event doesn’t do the job for them. A big oil price spike or a huge housing bubble could certainly cause a recession with little or no help from the Fed. Speaking of which:

And this:

Housing prices haven’t reached their 2016 peak, and oil prices haven’t spiked sharply over the past couple of years. Still, housing prices are up 40 percent since 2012, and oil prices are up 160 percent over the past two years. Those are pretty fair increases.

SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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