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Five Things You Need to Know: CPI, Who is Humphrey Hawkins?, Bernanke, Great Moments, Lewis and Who?


What you need to know (and what it means)!


1. CPI

First, the boring stuff: the Consumer Price Index (CPI).

  • The headline CPI number came in at 0.2%, the smallest gain in four months, and in-line with expectations.
  • The CPI is up 4.3% over the past 12 months.
  • The surprise came in the core number, which increased 0.3%, ahead of 0.2% expectations.
  • Why the surprise? Owners' Equivalent Rents (OER), which makes up 30% of the CPI calculation.
  • As yesterday's PPI suggested based on the declines in residential natural gas (-3.7%) and electricity (-2.8%), the OER would likely see upward pressure.
  • Wait, did you see declines would cause upward pressure in the OER and therefore the CPI?
  • Yes. Because utilities are netted out of the OER calculation, the effects of declining natural gas and electricity is actually inflationary. Go figure. Literally.

2. What is Humphrey-Hawkins?

This morning at 10 a.m. EST, Federal Reserve Chairman Ben Bernanke will deliver Humphrey-Hawkins testimony before the Senate Banking Committee. What is this Humphrey-Hawkins testimony all about? Who started it and why?

  • The twice annual Humphrey-Hawkins testimony was created by the Full Employment and Balanced Growth Act of 1978.
  • Among other things, the act legislated the required testimony of the Federal Reserve Chairman before both the Senate and the House of Representatives regarding monetary policy.
  • Senator Hubert Humphrey and Representative Augustus Hawkins (hence, Humphrey-Hawkins) created the act specifically to address four primary goals:
    - full employment
    - production growth
    - price stability
    - budget balancing and trade balancing
  • The irony of today's focus on Fed Chairman Ben Bernanke's testimony should not be lost. The Full Employment and Balanced Growth Act of 1978 is itself deeply grounded in the high unemployment and rising prices of the 1970s.
  • The heart of the Full Employment and Balanced Growth Act of 1978 is embedded in Keynsian economic theory.

3. Bernanke Watch

Today Fed Chairman Ben Bernanke is delivering the twice annual Humphrey-Hawkins testimony (read it here), as required by the Full Employment and Balanced Growth Act of 1978. While the text of his speech as already been released, the most important part of the two-day testimony will be the Q&A. That is where the real meat will be spelled out.

  • As today's Number Two, above, noted the irony of today's focus on Fed Chairman Ben Bernanke's testimony should not be lost.
  • The Full Employment and Balanced Growth Act of 1978 is itself deeply grounded in the high unemployment and rising prices of the 1970s, otherwise known as stagflation.
  • The Humphrey-Hawkins testimony was created to require the Federal Reserve chairman to explicitly outline the central bank's monetary policy goals and link them with economic policy from the Executive and Legislative branches of government. You know, just so we're all on the same page.
  • While many are watching (and hoping) for Bernanke to adopt a more dovish tone and lower expectations for an 18th consecutive rate hike, we will be watching for something else: inflation targeting.
  • Bernanke is a well-known proponent of inflation targeting, but so far has not pushed the Fed (at least publicly) to adopt specific inflation targeting policies.
  • However, it is noteworthy that Federal Reserve Governor Nominee Frederic Mishkin co-wrote a book on inflation targeting with Fed Chairman Ben Bernanke.
  • Notably, although it has never been explicitly stated as far as we know, whenever former Federal Reserve Chairman Alan Greenspan said that monetary policy should remain "flexible," one interpretation of that is a rebuke of rules-based, and therefore inflexible, inflation-targeting monetary policy.

4. Great Moments in Humphrey-Hawkins History

As noted above, the twice annual Humprhey-Hawkins testimony has a long, storied history in American politics and finance. Because it is so closely watched for clues to Federal Reserve monetary policy, events surrounding the testimony have produced many great moments. Below are a few Great Moments in Humphrey-Hawkins testimony.*

  • 1778: Federal Reserve Chairman Duncan Stringfellow Lattimore Cooper praises colonial "break from the realm," suggests continental militia force guard the reserves, killed in duel by rival.
  • 1834: Federal Reserve Chairman Whitimore Hackett announces beaver pelt collateral hike in government-issued foldin' money.
  • 1861: Federal Reserve Chairman Benjamin Rutherford Mills suggests unfair US trade surplus with local Indian tribes may pressure the "coinage," or possibly result in arrow attack. Testimony interrupted by arrow attack.
  • 1865: Federal Reserve Chairman "Wild" Bill Rutledge warns of whiskey inflation, drinks bottle of whiskey during testimony, accidentally shoots Senate Banking Committee chairman Edward Longfellow.
  • 1953: Federal Reserve Chairman Eugene P. McCarther warns of communist threat to money supply, film industry. Also testifies organized crime may have infiltrated government at all levels.

* Completely made up.

5. Lewis and Who?

What if you threw a Bicentennial Celebration but no one showed up? You lose money. That is what tourism officials have discovered as events planned to commemorate the 200-year anniversary of Lewis and Clark's western explorations between 1804 and 1806 have failed to draw interest.

  • The Wall Street Journal reports that an estimated $70 million to $100 million of city, state, federal, private and corporate money has been spent building infrastructure and staging events to honor the duo's achievement.
  • Unfortunately, tourism officials say interest in events across the country to commemorate the bicentennial have failed to capture the public's attention.
  • According to the Great Falls (Montana) Tribune, the city saw more than $500,000 in losses from events related to Lewis and Clark.
  • The nonprofit National Council of the Lewis & Clark Bicentennial predicted that as many as 25 million people would attend events planned along the expedition's route, the WSJ said.
  • "Fort Benton, Montana, population 1,500, was so concerned about managing big crowds that police conducted a disaster drill, pretending a truckload of ammonia crashed and spilled just as thousands of tourists descended on Main Street," the WSJ said.
  • It's a hard lesson, but sometimes reality simply fails to live up to our expectations. But Lewis and Clark fans shouldn't be too embarrassed. Below are a few other celebrations and festivals that failed to meet tourism expectations.

1972 Paducah, Kentucky Leeching Bicentennial celebrating the "miraculous healing powers of the leech" draws only 15 participants.

1981 Portland, Oregon Odor Festival celebrating "unusual odors from the old milling plant down by the river" fails to draw anticipated large crowd.

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