The Fed insists it’s making “data-driven” decisions, but what if the data itself is broken? This month’s CPI report exposes a massive blind spot in how inflation is measured – and why bad numbers can lead to even worse policy choices…
By Peter Reagan
The federal government finally released the September 2025 Consumer Price Index (delayed due to the ongoing government shutdown). Overall CPI came in about where we expected:
- Headline CPI: +0.3% for the month; +3.0 percent over the last 12 months
- Core CPI (less food and energy): +0.2% in September; +3.0% since September 2024
Not as bad as some feared, better than many hoped. Better than the rough numbers we saw in August. Good news, right?
On its face, yes. Better news at least. It’s when you dig into the details, though, that something comes to light that reveals one of the single biggest flaws in the Fed’s decision making process.
Indeed, it is their blind spot, their Achilles heel.
It’s not exactly easy to spot if you don’t know what you’re looking for, so first let me explain how the Bureau of Labor Statistics (BLS) calculates housing expenses.
What in the world is OER?
OER stands for Owner’s Equivalent of Rent, and the BLS describes it as, essentially, how much a homeowner thinks they’d get if they rented their home.
This has always been one of the stranger aspects of these calculations. OER comes from a guess, not from data. It’s like me asking Phillip Patrick, “If you went and drove an Uber over the weekend, how much money would you make?” He has no basis for comparison! So he’d guess.
OER is a stand-in for actual housing costs. It’s an important number, too, even though it’s collected in such an unusual way. though, that the number is a modeled number, not a hard, accurate figure taken directly from data.
Of course, because it’s a modeled number instead of being based on actual hard figures, it has a much higher likelihood of not being accurate.
And if OER were only a small portion of what goes into figuring the CPI (which is an indicator of inflation in the economy), we could just treat any unusual readings as statistical flukes.
But OER is one of the biggest factors that goes into the calculation of CPI. How big? Wolf Richter tells us: 26% of headline CPI, 33% of “core” CPI (the one that doesn’t count food or fuel) and 44% of “core services CPI.” That last one is important – because ⅔ of all consumer spending is on services, not groceries or fuel or clothing.
So if OER is up, it makes CPI higher, and vice versa.
Okay, now you know everything there is to know about OER.
Unexpected good news
OER in September was just one-third as much as August. That’s a big change.
With that vastly reduced rate of OER increase, there should also be a similar reduced rate of price increase in other factors that go into CPI. Right?
But that wasn’t the case. In fact, overall CPI rose by 31bps, about ⅓ percent. Even with that drastically lowball OER, the overall report CPI was “the second worst since January.”
So, it seems pretty certain that the OER for September is woefully miscalculated which means that CPI is showing as much lower than it really is.
You and I know that to be the case. We see it every time that we go to the grocery store, every time that we buy anything at all.
Prices really are higher.
Sound reasoning based on bad data create bad decisions
And this is the Fed’s blind spot: They try hard to make decisions based on data.
That isn’t a bad thing to do. Especially when you’re trying to make decisions in as level-headed a way as possible. Data means numbers, and numbers don’t have a bias. They don’t have an agenda – no feelings, just facts.
Data-based decision making is generally a good thing.
But when the data’s wrong? When the data is so obviously off-trend that it looks like a typo – should you still make decisions based on obviously bad data?
To be fair, Jerome Powell has acknowledged that they’re working off of incomplete and/or inaccurate information. In fact, he said that the Fed is “driving in the fog.”
However, he’s not slowing down! The Fed is “driving in the fog” at the exact same speed as before the fog rolled in.
I don’t know about you, but when I’m driving and fog rolls in, I slow way down. Maybe turn my blinkers on if it’s really bad.
The Fed’s taking a more cavalier approach… They’ve cut interest rates twice this year based, at least in part (and maybe mostly), on clearly flawed CPI numbers (the real OER can’t possibly be that low!) Bad data leads to bad decisions.
And that’s alarming. Because we’ve seen the Fed make terrible decisions before. Remember, the current Fed chairman is the same one who allowed inflation to reach a 50 year high not too long ago, before finally and grudgingly doing something about it. Too little, way too late.
And this does feel like it could be another terrible decision. Let’s hope it doesn’t lead to a reignition of nearly-double-digit inflation.
Remember: Bad decisions can come from bad intentions or bad data. Honestly, I don’t care what the source is – I care a lot more about the consequences.
YOu should too. These same guidelines are just as true in your own financial planning as it is for the Federal Reserve.
Why should we suffer for their bad decisions?
We can’t fight the Fed. We can, however, make better choices than the Fed does.
The best way to start (with a nod to George Orwell’s 1984), is to defy the official narratives when they conflict with the evidence we can see with our own eyes. Trust our own reasoned and logical thinking even when it’s contradicted by bureaucrats at press conferences.
Does inflation look higher to you when you go to the store? Then, believe that you’re seeing things correctly. Not that you must be mistaken somehow. Because the reality is that the cost of living is rising a lot faster than the official inflation reports.
Do you no longer trust that the Fed and the government have your best interests in mind when making decisions that affect you and your personal finances? Then, trust that feeling, and take your financial situation into your own hands.
Because when it comes down to it, nobody is coming to save us. (The federal government can’t even make sound financial decisions for their own finances.) It would be foolish for us to think that they’ll take time out of their partisan bickering to patch up our personal financial situations, right? But don’t give up! There’s still hope.
And that’s why you need to take steps now to insulate yourself from bad data and the Fed’s blind spots alike. I think one of the best ways to do so is by diversifying your savings with physical precious metals today. Tangible gold and silver are uninflatable, hacker-proof and can’t be devalued by a government official’s say-so. I mean, there’s a reason that gold and silver have served as safe-haven, store-of-value assets thoughout human history. For the last 5,000 years at least.
And remember, 5,000 years ago, people weren’t dumber than you and I. They didn’t have as much science or technology, they didn’t have as many tools. They lived much, much closer to the earth (and to the edge of catastrophe) compared to us. I believe they have many important lessons we can learn.
If you agree, you can start your due diligence by learning why physical gold is the safest safe haven. (In the words of investing legend Ray Dalio, learn why Gold is the safest money.) After that, you’ll probably want to learn how to buy gold.
The entire Birch Gold team is standing by to help you take control of your financial future. The sooner you get started, the more secure you’ll feel. So don’t wait!