Fed Balancing Act: Are They Falling Behind the Curve?

The video discusses the Federal Reserve's focus on maintaining a 2% inflation target, highlighting the differences between core PCE and CPI metrics. It explains how PCE measures what businesses sell, while CPI measures consumer purchases. The video also explores the scope and weight effects influencing these metrics, particularly in housing and healthcare sectors. The discussion includes the impact of government spending on healthcare inflation and questions the Fed's reliance on PCE as a comprehensive economic measure.

What is the Federal Reserve's target inflation rate?

• 1%

• 2%

• 4%

• 3%

Which inflation measure does the Fed primarily focus on?

• Core PCE

• Median CPI

• Sticky CPI

• Core CPI

What is the primary difference between CPI and PCE?

• CPI includes government spending, PCE does not

• CPI is always higher than PCE

• CPI measures consumer purchases, PCE measures business sales

• CPI measures business sales, PCE measures consumer purchases

Why does PCE tend to be slightly lower than CPI?

• Due to higher consumer spending

• CPI is calculated more frequently

• Because of weight and scope effects

• PCE includes more volatile items

How does government spending affect PCE?

• It makes PCE more volatile

• It influences PCE through scope effects

• It causes PCE to rise significantly

• It has no effect on PCE