Hold the rate. The Fed can’t pump oil.

At its recent meeting, the Federal Reserve decided to maintain its interest rate target, forgoing a hike that would have been the second in six weeks. The target federal funds rate remained between 3.75 percent and 4 percent, with two members of the Federal Open Market Committee dissenting.

The Fed should be commended for its decision. While some may argue that recent inflation justified a rate hike, the increase in aggregate prices was almost entirely predicated on energy cost increases. The fact is that no central bank on earth has ever lowered the price of a barrel of crude by raising the cost of a home equity line of credit.

Consumer prices are up 3.7 percent over the past year. Energy is up 20 percent and gasoline 34 percent. Energy alone accounts for about 1.4 points of that 3.7 — around the same as housing, which normally drives the index and carries more than a third of its weight. When the energy shock is stripped out, the inflation picture changes dramatically.

Economists, and indeed the Fed, know that energy is the most volatile component, which is why they point to core inflation, the index that leaves out food and energy prices. However, even that might not provide the full picture of just how much oil price changes permeate the entire economy.

The issue is that core removes prices by category, not by what drives them. Despite jet fuel being one of the highest costs an airline pays, airline fares are counted within core; fares are up 22 percent over the year. So are the trucking and delivery charges baked into the price of nearly everything in shopping malls.

Reaching a better........

© The Hill