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US Federal Reserve Chairman Strongly Committed to 2% Inflation

Fed is “strongly committed” to sticking to their target of a 2% inflation rate.
This has been taken as a sign that the central bank isn’t planning to cut or raise interest rates in the near future. They believe that an inflation rate of 2% is the right level for allowing sustainable growth. It also gives them a degree of flexibility in terms of being able to change the interest rate if the economy goes downhill.

Of course, inflation has been comfortably under 2% during 2019. This is despite the interest rate being cut three times in the last four months. Higher interest rates are typically used as a way to maintain low inflation.

Other Subjects That He Covered 

The Fed Chairman also covered some other subjects during the event. For instance, he spoke about low labour force participation as well as middling wage gains.

As for the labour force participation level, the current level is 63.3%. This is the highest that it has been in over six years. However, Powell confirmed that this is still low when compared to other countries. Before the recession it sat at over 66% and Powell thinks that the Fed could focus on spreading the benefits of economic recovery more evenly. 

Unemployment is as low as it has been in almost half a century, at 3.6%. He said that there is still room for wages to be increased and for Americans to get to work. 

What Happens Next?

He pointed out that reaching the inflation level that they seek is an urgent matter. This is because low inflation expectations make it more difficult for the Fed to steer the American economy in the right direction. With trade wars causing a negative effect, overseas companies may remain worried about international debt collection and other issues for the time being.

Among the comments made by Powell, he stated that it is vital that they use all of the tools available to them to “not permit an unhealthy downward drift in inflation expectations and inflation”. He added that they are “strongly committed to symmetrically and sustainably achieving our 2 percent inflation objective”.

This means that business and families can make their long-term plans taking into account the fact that they can “reasonably expect 2 percent inflation over time”. It has been noted in the past that Fed officials would be comfortable with inflation running at a little over 2% for some time.

It has also been suggested that some of the policymakers would be happy with a clear statement that they will not raise interest rates until their inflation goals have been met. 

All of the points he made appeared to be in line with the comments coming from other Fed officials in recent months. They include mentioning that the current monetary policy stance is “likely to remain appropriate” and that they are currently “well positioned” to meet their targets.

This is likely to disappoint President Donald Trump, who has been open in his support for lower interest rates. The central bank last cut the benchmark interest rate by a quarter of a point in October, but Trump is keen to see negative rates introduced in the country to help businesses borrow more cheaply.