US inflation to fall further below 2% target: Fed's Powell
27 February, 2019
Despite solid growth and continuing job gains, the US economy will see inflation fall even further below the central bank's two per cent goal, at least for a time, Federal Reserve Chairman Jerome Powell said on Tuesday (Feb 26).
That forecast added weight to the Fed's recent announcements that it will be "patient" before making any further changes in the benchmark borrowing rate, a stance Powell re-emphasised in semi-annual testimony before the US Senate Banking Committee.
"Recent declines in energy prices will likely push headline inflation further below the ... longer-run goal of two per cent for a time," he said.
The US central bank increased the key policy interest rate four times last year but rising uncertainty, especially around the US trade confrontation with China, amplified concerns about slowing global growth and fears the Fed was moving too aggressively.
And with no sign of rising inflation, that prompted the Fed to signal clearly for the past several weeks that it would tread carefully.
Many economists no longer expect any increases this year, while a few say the next move could be a cut if the economy slows further.
Noting the Fed's preferred annual inflation measure sits at 1.7 per cent, Powell said "the extent and timing of any further rate increases would depend on incoming data and the evolving outlook."
The danger of having inflation continually below the target is that it saps confidence in the Fed's ability to impact the economy, especially during a slowdown.
But the muted inflation pressures and risks on the horizon mean "this is a good time to be patient and watch and wait and see how the situation evolves," he said in response to a question.
Unlike the reaction to some of his comments late last year, markets largely shrugged off Powell's testimony, to focus on other issues.
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