The Federal Reserve’s preferred inflation gauge is “stuck” in the Alan Greenspan era, according to the former St. Louis Fed president.
Former Federal Reserve Bank of St. Louis President and CEO James Bullard explained how Personal Consumption Expenditures (PCE) got its reputation and why it’s here to stay during an appearance on “Cavuto: Coast to Coast” Thursday.
“Alan Greenspan in the 90s did a review of all the different ways to measure inflation, and the outcome of that was that the personal consumption expenditures was viewed as a broader measure of inflation and, maybe, a better signal of the overall inflation picture,” Bullard said.
“And ever since then, there hasn’t been another review,” he continued.
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The PCE rose again in January as the Fed continues to grapple with the country’s fluctuating economy.
The personal consumption expenditures (PCE) index showed that consumer prices rose 0.3% from the previous month, according to the Labor Department. On an annual basis, prices climbed 2.4% – down slightly from the 2.6% reading recorded the previous month.
Speculation has been swirling around the Fed as experts are trying to pinpoint when the country’s central bank will eventually start cutting rates.
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“I think if you’re sitting on the committee and the economy looks like it’s been rebounding here some and inflation seems to be coming down, but maybe not as fast as you thought. Why do anything? Why not just sit where you are?,” Bullard told FOX Business’ Neil Cavuto.
He went on to add that as inflation comes down, the Fed will “have to get to a lower value of the policy rate.”
“But exactly when the committee will get to that is what everyone’s arguing about,” Bullard stressed.
FOX Business’ Megan Henney contributed to this report
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