The Fed’s Core
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

Readings on core inflation have improved modestly this year, but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
* * *
That’s the note of caution the Federal Reserve issued in respect of its decision yesterday to lower its target for the federal funds rate 25 basis points to 4.5%. We particularly like the part about the recent increases in energy prices. It is true that a barrel of oil has lately been selling for above $90 whereas at the start of, say, President Bush’s tenure in the White House a barrel of oil was closer to $30. But if one wants to measure the value of a barrel of oil, why in the world would one measure it against the scrip issued by the Federal Reserve?
The fact is that the value of oil has been remarkably steady against the most venerable measure of value — an ounce of gold. In January of 2001, when Mr. Bush acceded, a barrel of oil was selling for 8.25 100th’s of an ounce of gold, and today it is selling for about 8.32 100th’s of an ounce of gold. In other words, instead of tripling in the past 7 years the value of oil has barely budged. What has budged — if that is the word — is the value of a dollar, and it has gone through an astonishingly rapid collapse.
The Fed said yesterday that its action, combined with the rate cuts in September, “should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time.” We’ll see, though in any event, the market is at some point going to start demanding true price signals. And so, we predict, is the presidential debate.
This is an opportunity for the Republicans. The thing for them to remember is that the ball is in Nancy Pelosi’s court. It is to the Congress that the Constitution delegates the power to regulate the value of the dollar and of foreign coin. It’s one thing for the Congress to delegate this power in turn to the Fed. But if it delegates this power to a Fed that allows the value of the dollar to collapse to barely an 800th of an ounce of gold from a 265th of an ounce of gold over the course of a single presidency, people are going to start asking why the Congress has failed to step up to its constitutional responsibilities.