Federal Reserve Chairman Jerome Powell: Inflation remains above target, and there is currently no urgent need to adjust monetary policy

According to the Zhitong Finance APP, the Federal Reserve announced on Wednesday that it would maintain the benchmark interest rate at 4.25%-4.5%. In the subsequent press conference, Federal Reserve Chairman Jerome Powell stated that although inflation has significantly declined over the past two years, it remains above the central bank's target of 2%. The Federal Reserve is still firmly committed to achieving this goal and emphasized that there is currently no urgent need to adjust monetary policy.

The Federal Reserve's policy statement this time removed the wording from December last year regarding "progress towards the 2% inflation target," and only stated that inflation "remains slightly high." In response, Powell clarified that this adjustment does not mean a change in the Federal Reserve's stance on inflation, but rather a simplification of language. He stated, "Our commitment to the inflation target has not changed."

Powell pointed out that the core inflation indicator the Federal Reserve is focused on—the Personal Consumption Expenditures Price Index (PCE)—has shown readings consistent with the 2% inflation target in the last two readings. He emphasized, "Our goal is to achieve the 2% inflation target in a sustainable manner."

He reiterated that the Federal Reserve's monetary policy is primarily guided by the dual mandate of promoting maximum employment and maintaining price stability. He noted that the U.S. labor market remains strong, with a low and stable unemployment rate, and economic growth remains robust. Federal Reserve policymakers believe that the cumulative 1 percentage point rate cut over the past three meetings is appropriate given the progress on inflation and the rebalancing of the labor market. "Our policy stance is significantly more accommodative than before, and the economy remains strong, so we are not in a hurry to further adjust policy."

The decision to hold steady this time received unanimous agreement from the Federal Open Market Committee (FOMC) members, in contrast to a dissenting vote in December last year, with this meeting's decision passing unanimously. Powell stated that the current policy rate is still above the so-called "neutral rate" (the interest rate level that neither stimulates nor suppresses the economy), but he acknowledged that accurately determining the level of the neutral rate is not easy.

"The current rate level of 4.3% is above almost all committee members' estimates of the long-term neutral rate," Powell said, "We are indeed significantly above this level."

Nevertheless, Powell pointed out that the Federal Reserve's tightening policy has had a noticeable impact on the economy, including curbing inflation and balancing the labor market, without causing severe shocks to the overall economy. He emphasized, "Last year we cumulatively cut rates by one percentage point, and the economy did not suffer substantial negative impacts, indicating that rates are still at an appropriate level, and we do not need to rush to further adjust."

Recently, Tesla (TSLA.US) and SpaceX CEO Elon Musk criticized the Federal Reserve as "bloated" and called for cuts to the government budget. In response, Powell stated that the Federal Reserve practices "very strict budget management" and emphasized, "We are clear that we are an independent agency, we are accountable to the public, and we are indeed fulfilling that responsibility."

The Federal Reserve will conduct a five-year policy framework review this year, and the market is concerned about whether it will adjust the 2% long-term inflation target. In this regard, Powell clearly stated that the 2% target has proven effective and has become a standard widely adopted by central banks globally, and the Federal Reserve will not consider adjusting this target "If the central bank wants to adjust the inflation target, it should evaluate it after reaching the target, rather than adjusting it before the target is achieved," Powell said. "In fact, we have no interest in changing this target at all."

He also mentioned that the adjustment of the Federal Reserve's policy framework in 2020 allowed the central bank to act quickly during the COVID-19 pandemic and has recently helped reduce inflation. He stated that the Federal Reserve expects to complete the framework evaluation this summer but will not change its long-term goals.

The Federal Reserve's policy statement did not explicitly hint at the future direction of interest rate policy but emphasized that decisions on further adjustments to the federal funds rate target range will be based on the latest economic data, changes in outlook, and risk balance.

The policy statement read: "Recent data indicate that U.S. economic activity continues to expand at a robust pace, the labor market remains strong, and inflation is still slightly elevated."

Economists generally believe that it is reasonable for the Federal Reserve to adopt a wait-and-see attitude at this stage. Bankrate Chief Financial Analyst Greg McBride stated, "The progress toward the 2% inflation target has stalled, and the Federal Reserve is well aware of this. They did not release any signals that would indicate a rate cut in March during this meeting."

Additionally, the economic policies of the Trump administration—especially the tariff policies—may become an important factor influencing the Federal Reserve's decisions in the future. Powell stated at the press conference, "The impact of trade policy is broad, and we currently cannot predict its specific effects, nor do we know which countries are involved, or whether it will provoke retaliatory measures."