Federal Reserve Board Chairman Jerome Powell speaks during a news conference on July 27.
Photo:
mandel ngan/Agence France-Presse/Getty Images
Markets were elated by Chairman
Jerome Powell’s
remarks at his press conference on Wednesday, but it makes us wonder if it wasn’t too much of a good thing. Prices soared as if tighter monetary conditions won’t last long, and that’s troubling as an anti-inflation message.
The Federal Open Market Committee’s four-paragraph statement after its meeting was hawkish on inflation. “The Committee is highly attentive to inflation risks,” it said.
But Mr. Powell sounded much less hawkish at several points in his hour-long presser. It was especially striking to hear him say that current interest rates are close to “neutral,” meaning they are no longer accommodative. But even after Wednesday’s 75 basis-point increase, the fed funds rate is only 2.25%-2.5%. The inflation rate in June was 9.1%, which means real rates are still decidedly negative.
Mr. Powell also said he thinks rates might not have to increase all that much further, citing the June Fed median forecast of 3.25%-3.5%. Markets had been signaling ahead of the meeting that they believe the Fed will begin cutting rates a year from now. And while Mr. Powell didn’t bless that sentiment, he also didn’t do much to dispel it.
Not to be unkind, but when the fed funds rate was 2%-2.25% in October 2018, Mr. Powell said “we’re a long way from neutral” on interest rates. The inflation rate at the time was a mere 2.5%. Times and circumstances change, but the meaning of “neutral” can’t possibly have changed that much.
The Fed chief insisted more than once that he and his mates are determined to return inflation to their 2% target. We hope so. And it seems likely that inflation at annual rate will decline from 9% in the coming months as oil and other commodity prices have fallen. Slowing growth will…
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