NEW YORK, March 12 (Reuters Breakingviews) - Inflation is not cooperating with Jerome Powell. On Tuesday, the U.S. Labor Department said, opens new tab that consumer prices had risen 3.2% in February compared to the year earlier, slightly higher than economists’ expectation. Prices that exclude food and energy rose 3.8%. The Federal Reserve chair missed a short window to recalibrate the agency’s 2% target, complicating the future trajectory of interest rates.
The goal is an arbitrary one. In 2020, when inflation was quiescent, Powell even decreed, opens new tab that the Fed would aim for an average of 2% inflation over time. Nevertheless, he has sworn allegiance to it, saying in May 2023 that the Fed would not “drop our tools, once inflation reached 3%. That suggested the central bank would refrain from cutting interest rates until it was sure price growth was converging towards 2%. At the end of 2023, when inflation was around 3%, Powell contradicted himself. As inflation fell, he discussed plans to cut rates.
That doesn’t look likely now. According to the New York Fed’s most recent survey of expectations, opens new tab, consumers expect inflation to remain at 2.9% in five years, a jump from what they previously thought. Powell is in a bind. He could wait for inflation to fall before cutting rates, dashing market expectations, or act before then and risk missing his target. Moving the goalposts when he had the chance might have been a better option. (By Lauren Silva Laughlin)
Capital Calls – More concise insights on global finance:
Europe’s paper M&A chase is predictably fiddly read more
Reddit lives or dies by the meme read more
Travel boom will lift IAG higher read more
John Malone can wait out Altice’s $25 bln problem read more
Energy M&A flows downstream from Big Oil read more
Editing by Francesco Guerrera and Aditya Sriwatsav
