If Food Prices Are Rising, Why Is the Fed Chasing Inflation?

The Federal Reserve's plan to print $600 billion and buy US Treasuries from banks and investors to drive down medium-term interest rates was supposed to be a mild steroid for our weak economy. Instead, it's been a powerful steroid for critics of the US central bank.

Over the last few days, antagonism toward the Fed has come from both likely critics (other countries who export to us and want our dollar to be stronger) and unlikely critics, like this bizarre but amusing viral video with bears (yep).

Ryan Avent points to today's inflation news (still too low) and plugs it into his defense of monetary easing:

Here's a chart of the year-over-year change in core prices:

In the twelve months to October, core consumer prices rose 0.6%. That's the smallest increase in the history of the index, which began in 1957. That's what the Fed is trying to change, and that's what you need to keep in mind when you hear people warning about runaway inflation.

But I read that gas and food prices are already rising, you might ask, so why is the Federal Reserve chasing higher inflation?

The problem is that after you take out food and energy prices (which are rising mostly because of international events that don't reflect the health of our economy), "core inflation" is absolutely anemic. Inflation, and expectations of future inflation, is good is moderate doses. When prices rise moderately, revenues, profits, income and well-being rise, in tandem. By extension, if you expect prices to rise moderately, you (seller of those pricier goods) expect revenues to rise too, so you buy a new machine and hire a worker to operate it.

Right now "core inflation" is too low. This isn't my opinion, it's the opinion of the Federal Reserve and most economists. Demand for goods from nationwide stores and suppliers is still weak and it's being reflected in the fact that non-food/non-energy inflation has been exactly zero for the last three months.