Breitbart Business Digest: The Fed’s Inflation Mirage Meets the PMI Reality

America’s economy is on the rise, with factories running at full capacity, demand for goods and services remaining strong, and prices steadily increasing. This is a clear indication of a thriving economy, and yet, the Federal Reserve’s “lag theory” of inflation fails to explain this phenomenon.

The latest Purchasing Managers’ Index (PMI) report, released by the Institute for Supply Management (ISM), shows that the manufacturing sector in the United States is experiencing a significant boost. The PMI, which measures the economic activity of the manufacturing sector, rose to 60.8% in February, the highest level since May 2004. This is a clear indication that the manufacturing industry is thriving, and the economy is on a positive trajectory.

However, the Federal Reserve’s “lag theory” of inflation suggests that when the economy is doing well, inflation should follow suit. This theory states that when the economy is growing, demand for goods and services increases, leading to higher prices. However, this is not the case in the current economic climate. Despite the strong demand and rising prices, inflation remains relatively low.

This has led many experts to question the validity of the “lag theory” and its ability to accurately predict inflation. The recent PMI report is a clear example of how the theory fails to explain the current economic situation. The report shows that while demand for goods and services is high, prices are rising alongside precautionary inventories, indicating that businesses are preparing for future demand.

This is a positive sign for the economy as it shows that businesses are confident about the future and are investing in their inventory to meet the expected demand. This, in turn, will lead to increased production and job creation, further boosting the economy.

The Federal Reserve’s “lag theory” also fails to take into account the impact of global factors on the economy. With the rise of globalization, the US economy is no longer isolated, and external factors can have a significant impact on inflation. For instance, the recent rise in oil prices due to political tensions in the Middle East has led to an increase in the cost of production for many businesses. This, in turn, has resulted in higher prices for consumers.

Moreover, the theory also fails to consider the impact of technological advancements on the economy. With the rise of e-commerce and automation, businesses can now produce goods and services at a lower cost, leading to lower prices for consumers. This has a deflationary effect on the economy, which goes against the “lag theory” of inflation.

In conclusion, the recent PMI report and the current economic climate in the United States clearly show that the Federal Reserve’s “lag theory” of inflation is not an accurate predictor of inflation. The strong demand, rising prices, and precautionary inventories in the manufacturing sector are a testament to the resilience of the US economy. It is time for the Federal Reserve to re-evaluate its theories and come up with a more accurate and comprehensive approach to managing inflation.

As the economy continues to thrive, it is essential for businesses and consumers to remain vigilant and adapt to the changing economic landscape. With the rise of technology and globalization, the economy is constantly evolving, and it is crucial to stay informed and make informed decisions. The future looks bright for America’s economy, and we must continue to work together to ensure its continued success.