Fed Chairman Jerome Powell is poised to make raising American prices a priority for the central bank. The questions that must be asked is, do Americans want that? Despite low inflation, there doesn’t seem to be a public outcry for raising the prices of consumer goods. With both unemployment and inflation low, the Fed would seem to have hit a sweet spot in achieving its dual mandate. Powell seems determined however, to raise inflation a few basis points, no matter what policy levers he must pull. Bloomberg’s Rich Miller and Craig Torres write:
Federal Reserve Chairman Jerome Powell and his colleagues have made an important shift in their strategy for dealing with inflation in a prelude to what could be a more radical change next year.
The central bank has backed off the interest-rate hikes it had been delivering to avoid a potentially dangerous rise in inflation that economic theory says could result from the hot jobs market. Instead, Powell & Co. have put policy on hold until sub-par inflation rises convincingly.
“The Fed is evolving to a ‘whites-of-the-eyes’ approach in terms of inflation’’ under which it won’t hike rates until price rises accelerate, said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC.
Powell and some of his colleagues have been perplexed and perturbed by the Fed’s failure to convincingly raise inflation to its 2 percent target. That’s what’s driving his seeming adoption of a show-me strategy on price pressures.
As the Fed embarks on a year-long review of its monetary policy framework, Powell’s also shown willingness to seriously consider an approach under which the central bank would seek price rises above its objective for a while.
Read more here.
Jeremy Jones, CFA
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