Fed's Inflation Target and Method Guaranteed It Would Be Behind the Curve

In 2012 the Fed set an "inflation" target of 2%. Only it wasn't really an inflation target. It was a PCE target. The PCE is the Personal Consumption Expenditures Index, which the BEA reports as part of its quarterly GDP reports. There's also an interim monthly update that is not widely followed. The PCE is a weirdly weighted, narrowly defined basket of goods and services used by consumers. It is similar to the CPI, and largely based upon CPI, but the methods used to weight its components cause the index to under represent inflation even more than CPI does.

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