Federal Reserve (Fed) Chair Jay Powell was largely given positive reviews for his performance during last Wednesday’s Federal Open Market Committee press conference. Risk markets also approved, with equities rallying strongly by the conclusion of his remarks.
Despite mounting criticism that Fed policy has fallen too far behind the curve on inflation, Powell stuck to the Fed’s new script that inflation will decline to its 2% target by the end of next year (but never mentioned the newly retired word, “transitory”). The press conference did, however, contain some revealing questions on the Fed’s new “average inflation targeting framework” and its impact on the current state of the economy.
One question asked whether intentionally overshooting on the Fed’s 2% inflation target (or seeing “the whites of the eyes on inflation”) played into the recent surge in prices. Powell admitted the “inflation we got was not at all the inflation we were looking for or talking about in the new framework.” The Fed wanted to overshoot on wage inflation but instead saw price increases across a broader range of goods and services while wages failed to keep pace.
The current high-inflation environment and loss of purchasing power has harmed many of the low- and moderate-income workers that the Fed’s new framework on inflation was intended to benefit. The economy’s recent uptick in inflation may represent a case where Fed policymakers should be careful what they wish for. More aggressive monetary tightening may be required to rein in the wrong type of inflation, while labor markets and economic growth face headwinds from the spread of new COVID-19 variants.
Tags: Federal Reserve | FOMC | Inflation | Risk Markets | COVID-19 pandemic | Labor Markets | Economic growth
< Go to Viewpoints
Disclosure Statement
The material provided here is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management.
This material is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice. The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete. Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements. Actual results may differ significantly. Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.
Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. There is no representation or warranty as to the accuracy of the information and Penn Mutual Asset Management shall have no liability for decisions based upon such information.
High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.
All trademarks are the property of their respective owners. This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission.
