Federal Reserve Chairman Jerome Powell was criticized by analysts and investors ...
SAN FRANCISCO - Federal Reserve Chairman Jerome Powell was criticized by analysts and investors this week when he seemed to set aside concerns about weak U.S. inflation, repeatedly describing its recent decline as temporary and dimming market expectations of an interest rate cut.
Just as they no longer feel the need to get “ahead of the curve,” and raise rates in plenty of time to prevent inflation from rising too fast in the future, neither do they feel the current U.S. economy, with a 3.6 percent unemployment rate and growth above its long-term trend, needs an extra push and lower borrowing costs from the U.S. central bank.
“With the economy operating at or close to the Fed’s dual-mandate objectives ... we can, I believe, afford to be data-dependent” and watch the flow of information for signs of change or developing risks, Clarida said in a speech at the Hoover Institution at Stanford University. Rising productivity and other forces may be holding inflation back in a systematic way, allowing for even more growth without price pressures. That’s the argument White House officials have used to justify their demand for Fed rate cuts, and the idea has some traction at the central bank as well.
In his press conference after the end of a two-day policy meeting on Wednesday, Powell referred to the weak inflation as transitory no fewer than nine times. That led some in the market to question the Fed chief’s assessment. He has previously warned about the risks of using economic models to try to look too far into the future, particularly at times like this when the Fed is near its targets, the economy is growing, and the costs of a mistake in either direction are higher.Echoing comments he has previously made, Chicago Fed President Charles Evans said on Friday the central bank’s credibility and commitment to its inflation target may be at risk if it doesn’t respond at some point.
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