–Economy ‘Healthy;’ Not Everyone Feeling Benefits
By Anthony Mace
NEW YORK (MaceNews) – New York Federal Reserve President John Williams Thursday told reporters that low inflation is still a “worry” that can hamper the execution of monetary policy.
“I do worry if inflation continues to systematically undershoot our target,” he said, answering a question from Mace News. “It would make it harder to achieve our goal.”
Williams was commenting after a speech to a neighborhood and housing development conference. After Wednesday’s Consumer Price Index report and the morning’s Producer Price Index report, he acknowledged that, “Inflation has come in a little softer.”
“The broader context,” he said, “is we’ve been below our inflation target for many years.” It’s a subject, “We’ll certainly be watching closely.”
Fed Chairman Jerome Powell, commenting during his post-FOMC press conference last month, was referring to that broader context when he said low inflation is “one of the major challenges of our time.”
While below-target inflation does reinforce the Fed’s argument for patience in considering rate changes, the difficulty in maintaining a 2% acceleration in prices keeps the threat of disinflation alive.
In the Federal Open Market Committee meeting minutes published Wednesday, participants in last month’s policy meetings acknowledged, “On a 12-month basis, overall inflation had declined, largely as a result of lower energy prices” while outside the core, it was near the 2% target.
Yet “many” of the Fed regional bank presidents and Board members had telegraphed their concern that inflation was not more robust. According to the minutes, “Many participants indicated that, while inflation had been close to 2 percent last year, it was noteworthy that it had not shown greater signs of firming in response to strong labor market conditions and rising nominal wage growth, as well as to the short-term upward pressure on prices arising from tariff increases.”
Most of Williams’ earlier prepared remarks were devoted to the “complex and challenging” community issues of affordable housing shortages and displacement through gentrification and his brief overview of the economy was overwhelmingly positive.
“We’re closing in on the longest economic expansion on record, unemployment is at historically low levels and inflation is close to our 2 percent target,” he said. “From a pure monetary policy perspective, this is a healthy economy.” Not everyone benefits, he added.
Wednesday’s March CPI report showed the consumer inflation rate at 1.9% over the past year, with the core rate right at 2.0%. Personal consumption expenditures, the measure the Fed prefers because it is not dominated by housing prices, has been running somewhat under that. The morning’s PPI report showed business inflation rising at a 2.2% rate over the year.