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The Federal Reserve forecasts clear skies for the near future

Inflation for non-food and non-energy items hold steady near 2 percent

Photo (c) macgyverhh - Getty Images
Borrowers and lenders alike breathed a collective sigh of relief on Wednesday as Federal Reserve Chairman Jerome Powell’s forecast gave two thumbs up. In a nutshell, Powell’s outlook was affirmative.

“My colleagues and I have one over-arching goal: to sustain the economic expansion with a strong job market and stable prices for the benefit of the American people. The U.S. economy is in a good place, and we will continue to use our monetary policy tools to keep it there,” he said.

As far as interest rates and inflation go, Powell envisioned that interest rates will be in a holding pattern for a while and confirmed that inflation continues to be in check.

“We don’t see data coming in that suggests that we should move in either direction,” Powell commented after officials lowered their projected 2019 interest-rate increases this year to zero from two. “They suggest that we should remain patient and let the situation clarify itself over time. It may be some time before the outlook for jobs and inflation calls clearly for a change in policy.”

The Fed reports that on a 12-month basis, inflation has declined across the board, pegging the shift on lower energy prices. Looking further down the balance sheet, inflation for non-food and non-energy items are holding steady near 2 percent.

“On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed,” wrote the agency in its review of the current financial climate.

The deeper dive

While low inflation sounds like a good thing from a consumer angle, Powell called out global price pressures as being weak -- in his words, “one of the major challenges of our time.”

“I don’t feel that we have kind of convincingly achieved our 2 percent mandate in a symmetrical way,” Powell reflected. “That gives us the ability to be patient, and not move until we see that our target goals are being achieved.”

The jury might be out for a while trying to decipher Powell’s request for patience. “It was very dovish,’’ Stephen Stanley, chief economist at Amherst Pierpont Securities LLC, told Bloomberg. “It suggests that the Fed has jumped to the conclusion that the weakening we have seen since the start of the year will be more fundamental and more persistent, rather than being temporary crosscurrents.”

“Policy makers appear to have cooled on the notion of any meaningful, lasting impact from last year’s tax reforms and instead project a return to trend growth, a stabilization of the unemployment rate and little pickup in price pressures. Amid this backdrop, they do not see much need to further normalize interest rates,” wrote Bloomberg economists Carl Riccadonna, Yelena Shulyatyeva, and Tim Mahedy.

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