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Notes -
Well the OP claimed inflation hasn’t been fixed. So for the matter of that be correct/false real time data is needed. You need to answer the question does the US currently have inflation. Real time data says we are currently in deflation.
Also this data is very important for monetary policy. If the smoothed data shows we were at 8% 6 months ago. Now at 4%. In 6 months it will show 1%. That sounds like you are slowly cooling the economy. But if we were at 10% 6 months ago. -2% today. Then the fed should be thinking it is excessively cooling the economy and needs to correct policy much faster. Or in 6-8 months we have a moderate recession where the fed eases aggressively.
I 100% agree inflation was higher than official data past few years. It’s lower today. And the “transitory” inflation debate would have been proven wrong much earlier if smoothed housing data had been replaced then with real time housing data which would have shown worse inflation earlier and likely led to fed hikes earlier.
So for fed policy I think it’s super important. It’s like driving a car. You want to know your speed is 20 mph right now not that it averaged 80 mph the last 6 hours. If you have a traffic light half a mile ahead you want to know when to break correctly.
Getting back to the first principle here - OP claimed the fed would fail to stop inflation. That’s why the debate between using 6 month old data and real time data becomes important. The real time data shows deflation.
Personally I don’t like the fed even looking at inflation. It’s too hard to define what you are actually talking about. Targeting something purely nominal like nominal gdp or nominal income makes more sense to me.
You can fly into a deflationary recession quite quickly. 2007/2008 says hello. The fed hikes quite high then fighting inflation and didn’t notice until it was too late they blew everything up. Today we have better tools and practice using those tool to clean up deflation but it’s still not easy.
And realize that using real time data would have had the fed hiking late 2021 at the latest. We would never have overshot inflation as much if they used better data.
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