Powell: Low Inflation Caught Fed by ‘Surprise’

Inflation running under the Federal Reserve’s 2 percent target was “a bit of a surprise” to monetary policymakers over the past few years, especially the decline in inflation in 2017 even as the labor market improved, Fed Chairman Jerome Powell said at an event in Chicago today.

“The 2017 shortfall from our 2 percent goal appears to reflect, at least partly, some unusual price declines, such as for mobile phone plans, that occurred nearly a year ago,” he said. However, he added, inflation readings have gotten closer to 2 percent over the past several months, “and the 12-month change should move up notably this spring as last spring’s soft readings drop out of the 12-month calculation.”

Powell also discussed the question of whether the economy has reached full employment. Even with the unemployment rate at a level — 4.1 percent — that normally suggests full employment, labor force participation is not at levels that economic conditions might otherwise suggest, with certain measures “suggest[ing] some remaining slack,” he added.