Skip to:
  1. Main navigation
  2. Main content
  3. Footer
Press Release

Cleveland Fed researchers on FOMC projections; CPI vs PCE inflation; central bank independence

Latest FOMC projections show shift in expectations for fed funds rate, say Cleveland Fed researchers

In March, the Federal Open Market Committee (FOMC) released its updated Summary of Economic Projections. According to Federal Reserve Bank of Cleveland researchers John Carlson and Bill Bednar, changes from December to March in where FOMC participants see the federal funds rate at the end of the next few years suggest that participants generally see a tighter policy environment over the next few years than they saw in December of 2013. The fact that the FOMC’s outlook for the unemployment rate generally improved from December to March and the outlook for inflation generally remained the same explains why there might have been some shifting in the expected path of the federal funds rate.

Read Updated Policy Projections and Improvement in the Unemployment Rate

Cleveland Fed researchers explain differences in the CPI and PCE inflation rates

Two oft-cited measures of inflation are the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) price index. Since 2000, the inflation rate as measured by the CPI has been about half a percentage point higher than PCE inflation. Federal Reserve Bank of Cleveland researchers Joseph Haubrich and Sara Millington say that differences in the two inflation rates can be explained largely by differences in the basket of goods and services that is used to calculate each index and the weights assigned to different prices in each basket.

Read PCE and CPI Inflation: What’s the Difference?

Central bank independence a fragile concept, says Cleveland Fed researcher

Central banks are ultimately accountable to the governments that created them, and these governments sometimes have monetary objectives that take precedence over price stability. Because of this intrinsic tension, says Federal Reserve Bank of Cleveland researcher Owen Humpage, central bank independence is a nuanced, mutable, and, ultimately, fragile concept, as the Federal Reserve’s not-too-distant past illustrates.

According to Humpage, during the Second World War, the Federal Reserve effectively abdicated its responsibility for monetary policy and focused instead on helping the U.S. Treasury finance the conflict. When wartime price controls ended, Humpage says inflation quickly reached double-digit levels.

The government’s debt-management demands on monetary policy continued until the mid-1970s, when the Treasury began routinely auctioning its debt. But 1961 brought a new, more subtle, claim on the Federal Reserve, says Humpage.

Between 1961 and 1995, the Fed frequently intervened in the foreign-exchange market, either to protect the U.S. gold stock or to influence exchange-rate movements. The Federal Reserve Bank of New York transacted in the market both for the Federal Reserve’s own account and for the U.S. Treasury’s account. Although appearing as coequals, Humpage says the Treasury, by virtue of its clearer legislative mandate, was the dominant force in foreign-exchange operations.

Although the Federal Reserve prevented these actions from creating unwanted bank reserves, Humpage says many Fed policymakers feared that the sterilized intervention sowed confusion about the direction of monetary policy, the limits of Fed independence, and the Fed’s commitment to price stability. After a prolonged debate, the Fed ended its routine interventions in 1995.

Read Cooperation, Conflict and the Emergence of a Modern Federal Reserve

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Doug Campbell,, 513.455.4479