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PALO ALTO, Calif. – Federal Reserve officials are trying to convince the public that they are determined to raise prices and wages without encouraging investors to wait for interest rate cuts.
The central bank aims for inflation of 2%, a level low enough for consumer comfort but high enough to guard against price cuts that are harmful to the economy. The Fed has struggled for years to achieve this goal.
Price increases excluding food and volatile fuels were only 1.6% for the end of March, and consumer expectations for inflation were low. The White House's attention was drawn to these developments: Earlier this week, President Trump spoke of the low rate of inflation prompting the Fed to cut rates and boost the economy. On Friday, Vice President Mike Pence said in an interview with CNBC that it was "maybe time" that the Fed plans to cut rates because "we do not see any inflation in this economy."
The Fed said this week that she was not ready to cut – or raise – interest rates, and Fed Chairman, Jerome H. Powell, said it was "not about to reduce – or raise – interest rates," and Fed Chairman Jerome H. wait for forward price gains. But continued weakness in inflation prompted Fed regional presidents Charles Evans and James Bullard to adopt a cautious tone., even though they also advocated inaction.
"Core inflation has fallen to relatively low levels in the past three months, which has heightened my worries about the inflation outlook," said Evans, director of the US Federal Reserve in Chicago, in a speech prepared Friday in Stockholm. "There is a clear risk that inflation expectations are too low and that recovery to levels consistent with our 2% symmetric target is slow."
Mr. Bullard, who heads the Federal Reserve Bank of St. Louis, said in an interview that it was a good time to "wait and see" how the economy was evolving after the Fed's recent decision to suspend the future. rate increases. It makes sense, he said, to wait and watch "until the second quarter".
However, he fears inflation will be lower than expected.
"It would be possible to take another easing step at some point, which would bring down inflation expectations to 2%," Bullard said. "It could be a good thing to do while the economy is doing well."
Before the Fed meeting this week, which left interest rates unchanged, investors had begun to expect the Fed to announce a rate cut to raise prices. Markets reacted to Powell's statement that the central bank would continue its wait-and-see approach in the foreseeable future.
Richard Clarida, Vice President of the Fed, reinforced this message Friday, saying that the current economic situation allowed a patient attitude.
The economy "is working at the same level as the Fed's double-mandate goals," namely full employment and stable inflation, Clarida told a crowd of academic and central bank economists at the meeting. Stanford University. The Fed can afford to look at data "as we assess possible adjustments to our political position". The wave of Fed comments comes after government data released on Friday morning showed that unemployment fell to 3.6% in April, the lowest level since 1969.
This should bode well for the Fed, which is theoretically trying to raise prices. If labor markets are tight and employees are hard to find, companies could raise wages to attract and retain talent. At the same time, strong demand can give companies the pricing power they need to charge more and cover their costs. However, the process has been slow to get into this cycle. The Fed has not achieved its price target in a sustainable or symmetrical way – which means overruns are as common as overruns – since its official adoption in 2012.
Although the Fed has achieved this goal several times in 2018, the most robust increases have been short-lived and have been motivated by factors that are not closely related to the business cycle, which means that they are only not those on which the Fed has the most influence. .
Evans, who has at times been a strong supporter of the Fed's policy, said he's still waiting for a recovery in core inflation despite growing discomfort. He also reiterated Mr. Powell's message: In an uncertain world, patience is the word of order.
He even hinted that an increase in rates would remain possible this year.
"The risk management adopted by the FOMC today is not unusual," he said. "Whether this leads to further rate hikes later this year or not will depend on how current uncertainties are resolved."
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