Should the Fed Be Fighting Deflation?

Robert Prechter's book, Conquer the Crash, which first pubished in 2002, stated:

It is nearly impossible to find a treatise on macroeconomics today that does not assert or assume that the Federal Rerserve Board has learned to control both our money and our economy. Many believe that it also possesses immense power to manipulate the stock market.

The very idea that it can do these things is false.

With the above in mind, consider that the Fed's unprecedented monetary policy for many of the years since the Great Recession had been aimed at jump-starting the economy.

Yet -- signs of deflation are still around.

A June 20 CNBC article explains why the U.S. central bank should prepare for deflation's next phase:

Amazon's acquisition of Whole Foods was, and will be, inherently deflationary. The operating efficiencies that Amazon brings to the grocery, and home delivery, business will further drive down prices and eventually spread to other areas of consumer goods.

The Federal Reserve ought to take note of this and begin planning for "Deflation, Part Deux."

Indeed, Kroger, a large supermarket chain, complained that food price deflation (falling prices) was hurting its profits.

Deflation in retail, as structural changes drive many sellers of goods out of business, means that retail real estate will deflate, as well, as surplus stores are shuttered and stand-alone stores are re-purposed for other uses over time.

And that is just one element of a return of deflation that we assumed the Fed had tamed with its aggressive interest rate policies over the last nine years.

Commodities prices, broadly, despite the persistent hope for both an acceleration in domestic, and global, economic growth, are down about 13 percent, year-over-year.

Crude oil sits at its lowest level of 2017, amid a glut of both oil and gasoline, even in the middle of the summer driving season.

Auto sales are down from last year's peak as used car prices are falling, another sign of weak pricing and some slowing in domestic demand.

Overall, the latest batch of economic numbers have been punk, not nearly strong enough to warrant further tightening by the Federal Reserve, despite promises to do so.

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