Powell Speech: Inflation Has Declined, But Core Inflation Still Too High

Federal Reserve Chairman Jerome Powell said Friday that the central bank is getting what it wanted and that it doesn’t have to be in a rush just yet. He noted that inflation remains well above target but is moving in the right direction.

In a fireside chat at Spelman College in Atlanta, Powell explained that it is the data that will tell whether the Fed has done enough or needs to do more. He stated that they are on track to reduce inflation to the 2% target without major job losses.

Chairman Powell added that consumer spending has been surprisingly strong. Regarding fiscal policy, he mentioned that it is unsustainable in the long term.

Key statements from the opening speech:

By many measures, labor market conditions are very strong (…) Today, labor market conditions remain very strong, and the economy is returning to a better balance between demand and supply of workers.

The pace at which the economy is creating new jobs remains strong, and has been slowing towards a more sustainable level. This gradual slowdown is due in part to the Fed’s efforts to slow the economy’s growth to help reduce inflation.

Partly because of this labor force growth, the unemployment rate has increased in the second half of the year, although it remains historically low (3.9%).

The FOMC is firmly committed to reducing inflation to 2% over time and to maintaining tight policy until we are confident that inflation is moving toward that goal. It would be premature to conclude with confidence that we have reached a sufficiently restrictive stance, or to speculate on when the policy might be relaxed. We are prepared to tighten the policy further if it is appropriate to do so.

Market reaction

During Powell’s presentation, the Dollar Index (DXY) accelerated lower, falling below 103.30. At 19:00 GMT, Powell will participate in a press conference with Fed Governor Lisa Cook, where he will speak to technology innovators and entrepreneurs at Spelman College.