BA: You're about to undershoot your inflation target for the seventh straight year and you forecast that you're going to undershoot it for the eighth straight year...Can you help us to understand why people would be advocating restrictive monetary policy at a time of persistent inflation undershoots?Here is how Powell responded:
JP: Well, we as a committee do not desire inflation undershoots and you're right -- inflation has continued to surprise to the downside -- not by a lot though -- I think we're very close to 2% and, you know, we do believe it's a symmetric goal for us -- symmetric around 2% -- and that's how we're going to look at it. We're not trying to be under 2% -- we're trying to be symmetrically around 2% -- and, you know, I've never said that I feel like we've achieved that goal yet. The only way to achieve inflation symmetrically around 2% is to have inflation symmetrically around 2% -- and we've been close to that but we haven't gotten there yet and we haven't declared victory on that yet. So, that remains to be accomplished.While this answer sounded reasonable on some level, it did not satisfy the very next inquisitor, Jeanna Smialek (Bloomberg):
JS: Just following up on Binya's question...I guess if you haven't achieved 2% and you don't see an overshoot -- which would sort of be implied by a symmetrical target -- what's the point of raising rates at all?Powell replied to this by making reference to the strength of the economy -- growth well above trend, unemployment falling, inflation moving up to 2%, and a positive forecast. In this context, the rate hike seemed appropriate. Again, a sensible sounding answer -- but did it answer the question actually posed?
The Committee reaffirms its judgment that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate. The Committee would be concerned if inflation were running persistently above or below this objective. Communicating this symmetric inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability...