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Saturday, July 13, 2024
HomeNewsEconomyFed QE3 Wind Down Raises Eyebrows Amid New Method Finding Producer Prices Rising

Fed QE3 Wind Down Raises Eyebrows Amid New Method Finding Producer Prices Rising

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The Labor Department reports prices for finished goods rose 0.2 percent in January, while excluding the food and energy components, prices also rose 0.2 percent. The Department of Labor, for the first time since 1978, is now using a revamped method for calculating prices, one in which economists say offers a broader and more accurate look at prices across the economy.

The old method was unduly influenced by commodity prices, because it measured only the cost of producer received goods. The new method unveiled on Wednesday, will also measure services, which represent a significant amount of the U.S. economy. The Producer Prices Index will also now factor in construction, government purchases and exports.

Because services are included in the index, there is likely going to be few large swings in the reading from month to month. However, while the PPI did not traditionally move the markets dramatically, the changes could elevate the report to the level of the consumer price index, which measures prices that consumers pay for their products.

The fact that the PPI is released ahead of the consumer price index, which traditionally has been used solely to gauge inflation, the decision to ween off the Fed QE3 program today might indicate a concern for inflation.

The Federal Reserve’s policy-setting board agreed unanimously that the central bank should continue cutting the pace of asset purchases in the Fed QE3 program in what was referred to as “measured steps.” The Federal Reserve is setting the narrative that the decision was based upon the notion the economy will continue to grow as expected. However, it isn’t growing. So, what may be the other reasoning?

According to minutes from the January FOMC meeting, “a few” participants said they could see hiking the Fed’s benchmark interest rate “relatively soon,” while others on the board disagreed. The Fed members minimized a weaker-than-expected December jobs report, as well as recent economic data showing the economic slowdown. They also said they weren’t yet concerned about turmoil in emerging markets, although they agreed to “monitor” the situation in those markets.

Perhaps, with the more accurate measurement of inflation being offered up to the markets on Main and Wall Street, less-than positive inflation projections are headed down the pipe.

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