(Finance) – “Inflation in the United States has fallen over the last year, but remains well above our 2% target.” Thus began the President of the Fed, Jerome Powell, participating in a round table on the topic of inflation and monetary policy. The number one of the US central bank then reiterated that “the process to bring about inflation sustainably to the 2% target still has a long way to go“.
“The FOMC is busy to reach a position of sufficiently restrictive monetary policy to reduce inflation to 2% over time,” the President recalled, adding “we know that i progress towards our 2% target they are not guaranteed” and “if it should prove appropriate further tighten the policywe will not hesitate to do so.”
Powell talked about the need to maintain himself cautious in an attempt to find a difficult balance between risk of being led astray by persistently positive data and the risk of excessive tightening of monetary policy. “We are making decisions meeting after meeting,” she said, “based on the incoming data and their implications for the outlook for economic activity and inflation.”
Speaking of causes of inflation, the number one of the US central bank recalled that, after having fallen below the target of 2% in the first year of the pandemiccore PCE inflation has increased significantly in March 2021. A surge that then it turned out to be unexpected and had not been predicted by the Survey of Professional Forecasters and which many attributed to the prolonged effects of the pandemic and to bottlenecks of global supply chains and beyond energy shock produced by the war between Russia and Ukraine. Hence the need for one restrictive monetary policy.
Powell noted that “it can be difficult to tell the difference in real time supply shocks from demand shocksand also determine how long both will persist,” but stressed that such shocks “could request a restrictive policy to align aggregate demand with the weak level of aggregate supply”. “Supply shocks that push inflation to a sufficiently high level for a sufficiently long period – he continued – can influence expectations of long-term inflation of families and businesses. Monetary policy must openly address any risks of a potential de-anchoring of inflation expectations, as well-anchored expectations help facilitate the return of inflation to our target.”
“The strong one tightening of monetary policy during 2022 has probably contributed to keep inflation expectations well anchored“, concluded the President.
Speaking of level at which interest rates will stabilizethe President announced a five-year review in the second half of 2024.