US personal spending hits record highs, Stanford economist says Fed must raise rates above 9%

On July 29, the U.S. Bureau of Economic Analysis reported on the U.S. Personal Consumer Expenditure Price Index (PCE) for the month of June, and the figure was the largest increase in 12 months since 1982. On the same day, Stanford University’s senior fellow at the Hoover said Institution and economics professor John Cochrane said the Federal Reserve would have to raise interest rates above 9% to curb inflation.

PCE price index up 4.8 percent from a year ago

The US economy continues to look bleak every time a new economic report or data is released to the general public. In mid-July, the Bureau of Labor Statistics Consumer Price Index (CPI) report was released, revealing that June’s CPI data reflected a record high of 9.1% year-over-year. On July 27, the US Federal Reserve raised the Federal Funds rate by 75 basis points (bps) to help curb red-hot inflation.

Two days later, the Bureau of Economic Analysis (BEA) released the closely monitored index data for personal consumption expenditure, also known as PCE. The PCE index saw its biggest jump in 12 months, rising 6.8% in June, an increase not seen since January 1982.

“From the same month a year ago, the June PCE price index rose 6.8 percent,” details of the BEA report. “Prices for goods increased by 10.4 percent and prices for services increased by 4.9 percent. Food prices rose by 11.2 percent and energy prices rose by 43.5 percent. Excluding food and energy, the PCE price index rose 4.8 percent from a year ago. The BEA plans to release the results of its annual National Economic Accounts update on September 29.

Economics professor at Stanford University thinks a gold or Bitcoin standard won’t work

On the same day, economist John Cochrane did an interview with Kitco’s newsdesk and said the US central bank should raise interest rates to more than 9%. Cochrane further noted that a gold or bitcoin standard would not be able to control inflation. The economics professor at Stanford University said the “consensus view” was that the Fed should raise interest rates “significantly above” 9%.

“That means economists are currently talking about 10, 11, or 12 percent interest rates with 9 percent inflation to… [prices] down,” Cochrane noted. “I think the Fed and the markets are counting on a lot of inflation to go away on its own without interest rates going that high,” the Stanford economist told Kitco News host David Lin.

Lin also asked Cochrane about a gold standard or a bitcoin standard used to control inflation. “Sorry, no,” replied the economist. “Under the gold standard, there was a lot of inflation and deflation. 10 or 20 percent ups and downs of inflation and deflation, but every inflation was then accompanied by a deflation. I’m sorry, we’re not going back to gold.” Cochrane believes the Fed needs to tighten fiscal policy to combat inflationary pressures.

As for a bitcoin standard, Cochrane said it was a terrible idea and insisted that bitcoin (BTC) is “worthless.” “That’s a terrible idea,” Cochrane said in his interview with Lin. “In terms of financial technology, Bitcoin is an attempt to revive gold, something that is intrinsically worthless and that people only hold on to because it is rare… Bitcoin is also very bad for doing transactions on their own, because it is so is computationally intensive.” Cochran concluded:

The best answer is that our governments need to adopt sober fiscal and monetary policies and pay more attention to controlling inflation.

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BEA, Bitcoin, Bitcoin (BTC), bitcoin standard, Bureau of Economic Analysis (BEA), Core PCE, David Lin, Economist, gold, Gold Standard, inflation, January 1982, John Cochrane, Kitco News video, PCE, PCE data, PCE price index, personal consumer spending, US inflation

What do you think of the latest PCE data and the opinion of the economist John Cochrane? Do you think improved fiscal and monetary policy could help tame US inflation? Let us know what you think about this topic in the comments section below.

Jamie Redman

Jamie Redman is the news leader at News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open source code and decentralized applications. Since September 2015, Redman has written more than 5,700 articles for News about the disruptive protocols emerging today.

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