{"id":50,"date":"2025-05-06T08:38:26","date_gmt":"2025-05-06T12:38:26","guid":{"rendered":"https:\/\/people.bsu.edu\/econbriefs\/?p=50"},"modified":"2025-05-22T10:34:20","modified_gmt":"2025-05-22T14:34:20","slug":"stay-the-course-to-lower-inflation-by-dr-cecil-bohanon-and-dr-john-horowitz","status":"publish","type":"post","link":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/06\/stay-the-course-to-lower-inflation-by-dr-cecil-bohanon-and-dr-john-horowitz\/","title":{"rendered":"Stay the Course to Lower Inflation \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz"},"content":{"rendered":"<p><em>Originally written on 1\/17\/2023<\/em><\/p>\n<p><span data-contrast=\"auto\">The Bureau of Labor Statistics reported that the year-to-year increase in <\/span><a href=\"https:\/\/www.bls.gov\/news.release\/pdf\/cpi.pdf\"><span data-contrast=\"none\">the consumer price index (cpi) fell from a high of 9.0% in June 2022 to 6.5%<\/span><\/a><span data-contrast=\"none\"> in December 2022<\/span><span data-contrast=\"auto\">.\u00a0 This is good economic news because this is the sixth consecutive month the year-to-year rate has declined. The Federal Reserve\u2019s policy of raising the target federal funds rate seven times <\/span><a href=\"https:\/\/www.federalreserve.gov\/monetarypolicy\/openmarket.htm\"><span data-contrast=\"none\">since March of 2022<\/span><\/a><span data-contrast=\"auto\"> is working to reduce inflation. Although economic trends are never as predictable as Newtonian physics, the economic data confirms that the Fed\u2019s general approach is effective. It is also reassuring that the national unemployment rate remains below 4.0%, <\/span><a href=\"https:\/\/fred.stlouisfed.org\/series\/UNRATE\"><span data-contrast=\"none\">falling to 3.5% in December.<\/span><\/a><span data-contrast=\"auto\">\u00a0 We hope this news <\/span><a href=\"https:\/\/www.theguardian.com\/business\/commentisfree\/2021\/dec\/29\/inflation-price-controls-time-we-use-it\"><span data-contrast=\"none\">puts to rest calls for national price controls<\/span><\/a><span data-contrast=\"auto\"> and <\/span><a href=\"https:\/\/www.inequalitymedia.org\/the-truth-about-inflation?gclid=Cj0KCQiAq5meBhCyARIsAJrtdr6HDogke6LrjjYm3JAHYEW3BH5MG2xXb40UX-Adr5w9luUWRhEWy1QaAoNrEALw_wcB\"><span data-contrast=\"none\">other measures<\/span><\/a><span data-contrast=\"auto\"> to combat inflation.\u00a0\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559740&quot;:480}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Will this current reduction in the rate of inflation cause the Federal Reserve to slow Federal Reserve rate increases in 2023? Perhaps, but our opinion is that the Fed needs to stay the course to get to a long-term inflation rate of 2%. Staying the course is similar to patients continuing their treatment and taking their medications. However, <\/span><a href=\"https:\/\/www.fda.gov\/drugs\/special-features\/why-you-need-take-your-medications-prescribed-or-instructed\"><span data-contrast=\"none\">patients often fail to fill prescriptions, skip taking medicine, or take less than the prescribed dose,<\/span><\/a><span data-contrast=\"auto\"> which can cause the condition <\/span><a href=\"https:\/\/www.wellframe.com\/member-resource\/the-dangers-of-skipping-your-medications\/\"><span data-contrast=\"none\">to get worse or harder to treat<\/span><\/a><span data-contrast=\"auto\">.\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559740&quot;:480}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">In a perfect world, long-term absolute price stability is desirable. It would be a boon to economic activity if we could expect that goods and services costing $100 in 2023 will cost $100 in 2073. However, for numerous reasons, policymakers find this untenable. The next best option is to target a low positive steady inflation rate. The Federal Reserve has more or less committed to a 2% inflation target rate in its communications over the last decade. <\/span><a href=\"https:\/\/www.bloomberg.com\/news\/videos\/2022-05-04\/fed-should-target-stable-3-or-4-inflation-romer-video\"><span data-contrast=\"none\">Some have suggested increasing the inflation rate target to 3% or 4%<\/span><\/a><span data-contrast=\"auto\">, but raising the inflation target is similar to patients deciding not to continue taking their medications because they <\/span><a href=\"https:\/\/www.ama-assn.org\/delivering-care\/patient-support-advocacy\/8-reasons-patients-dont-take-their-medications\"><span data-contrast=\"none\">fear the side effects or the cost of treatment<\/span><\/a><span data-contrast=\"auto\">. If the Fed can change its mind now, what assurance is there that 3-4% does not become 5-6% or 7-8%?\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559731&quot;:720,&quot;335559740&quot;:480}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Finally, the 2% target looks doable, and financial markets expect it. The difference in nominal yield between 5-year indexed and unindexed treasury bonds is a well-regarded measure of expected inflation. It stood at <\/span><a href=\"https:\/\/fred.stlouisfed.org\/series\/T5YIE\"><span data-contrast=\"none\">2.20% on Friday, January 13<\/span><span data-contrast=\"none\">th<\/span><span data-contrast=\"none\">, down from its high of 3.59% on March 25<\/span><span data-contrast=\"none\">th<\/span><\/a><span data-contrast=\"auto\">, 2022. It is not prudent to change course now.\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559740&quot;:480}\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Originally written on 1\/17\/2023 The Bureau of Labor Statistics reported that the year-to-year increase in the consumer price index (cpi) fell from a high of 9.0% in June 2022 to 6.5% in December 2022.\u00a0 This is good economic news because this is the sixth consecutive month the year-to-year rate has declined. The Federal Reserve\u2019s policy [&hellip;]<\/p>\n","protected":false},"author":112,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8],"tags":[532,92,93,147,98,4,7,535,534,537,536,538,6,533],"class_list":["post-50","post","type-post","status-publish","format-standard","hentry","category-inflation","tag-bureau-of-labor-statistics","tag-consumer-price-index","tag-cpi","tag-economics","tag-fed","tag-federal-reserve","tag-inflation","tag-medication","tag-national-price-controls","tag-policymaker","tag-price-stability","tag-treasury-bond","tag-unemployment","tag-year-to-year-rate"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Stay the Course to Lower Inflation \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/06\/stay-the-course-to-lower-inflation-by-dr-cecil-bohanon-and-dr-john-horowitz\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Stay the Course to Lower Inflation \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs\" \/>\n<meta property=\"og:description\" content=\"Originally written on 1\/17\/2023 The Bureau of Labor Statistics reported that the year-to-year increase in the consumer price index (cpi) fell from a high of 9.0% in June 2022 to 6.5% in December 2022.\u00a0 This is good economic news because this is the sixth consecutive month the year-to-year rate has declined. 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