Fed Rate and CPI

In early 2001, the Fed was able to fight the recession by rapidly lowering rates. Inflation fell from June 2001 to February 2002.  The policy rates were able to follow the inflation rate down.  The Fed also followed the policy with negative real rates in Oct 02. By engineering negative real rates, a housing bubble formed and drove commodity prices.  The economy responded and boomed.

They are still on high side.  Will inflation fall again before Fed can save it?

The chart below illustrates the problem by showing a rapid rise in real rates in 2006. 

Fed Price Stability Measures

The Fed and other central bankers follow the cpi and ppi very closely.

CPI rebounds to 2.7%.  The Fed is watching core inflation now.

Core cpi is still on the high side but dropping at 2.3%. 

Ideally around 2% is best.  1% is a cause for concern.

PPI (finished goods) has recovered somewhat but still under pressure.  I suspect this will drop to negative territory just after the recession.  This was the case in 2002.