Fed Chair Powell: 'Will Not Tolerate High Inflation,' Mission Not Complete Despite CPI Slowdown

Federal Reserve Chair Jerome Powell declared on Tuesday that the central bank will not tolerate persistently high inflation, reaffirming the commitment to achieving price stability. Speaking at a House Financial Services Committee hearing, Powell stressed that while external factors like Middle East conflicts exist, the Fed's primary goal remains to ensure inflation becomes a thing of the past.

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I have no intention of tolerating persistently high inflation.

Powell articulated his belief that "inflation is a choice" and that policymakers must opt for lower prices. He pledged that the Fed would utilize its commitment, responsibility, and policy tools to meet its price stability objectives. However, he refrained from specifying what constitutes "persistent" inflation, according to The Wall Street Journal.

Addressing the recent slowdown in the Consumer Price Index (CPI), Powell urged caution. "I don't want to overreact or underreact to a single data point," he stated, dismissing the idea that the mission is accomplished based solely on recent data. The June CPI report showed a 0.4% decrease month-over-month and a 3.5% increase year-over-year, falling below market expectations.

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Inflation is a choice. Policymakers have to choose lower prices.

Powell also rejected the concept of forward guidance, where the Fed pre-announces its future interest rate path. He argued that such a practice could lead policymakers to selectively accept information that confirms their existing beliefs and reject contrary data. "We don't want to make policy decisions that way," he explained, advocating for a more cautious communication approach.

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I don't want to overreact or underreact to a single data point. ... That's not my view.

Regarding economic conditions, Powell described the U.S. economy as expanding at a solid pace, with household consumption showing moderate growth and manufacturing output steadily increasing. He noted that while the housing market remains sluggish, the expansion of AI infrastructure presents a potential growth driver without necessarily fueling inflation. Powell also outlined a reform agenda to revamp the Fed's economic assessments, public communication, and policy decision-making processes, including the formation of task forces to evaluate the role of new technologies like AI in central banking.

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We don't want to make policy decisions that way.