Powell says inflation remains above Fed target, tariffs a factor

Investing.com -- Federal Reserve Chair Jerome Powell indicated that inflation in December was likely still well above the central bank's 2% target, with core personal consumption expenditures (PCE) index estimated at 3%.

Speaking at a press conference following Wednesday's Federal Open Market Committee meeting, Powell attributed the elevated inflation readings largely to the goods sector, which has been "boosted by the effects of tariffs." He noted that "disinflation appears to be continuing in the services sector."

Powell emphasized that "most of the overrun in inflation is from tariffs, not demand" and stated that core PCE excluding the effects of tariffs on goods is "running just a bit above 2%," which he described as "a healthy development on inflation." He expects the tariff effect on goods to peak and then decline this year, characterizing tariffs as "likely to be a one-time price increase."

The Federal Reserve kept its key policy rate steady at 3.50%-3.75%, halting a streak of three consecutive 25-basis point rate cuts. The decision included two dissents from Governors Stephen Miran and Christopher Waller.

Powell described the U.S. economy as on "firm footing" and stated that the current stance of monetary policy is "appropriate" and "promotes progress toward two goals." He noted that while housing sector activity remains weak, the effects of the government shutdown should be reversed this quarter.

Regarding the labor market, Powell suggested it "may be stabilizing," with slowing job growth reflecting "a decline in labor force, though labor demand has clearly softened as well."

The Fed Chair indicated that the policy rate is "within range of plausible estimates of neutral" and possibly at the "higher end of range of neutral." He stated the Fed is "well positioned to determine extent, timing of additional rate adjustments" but emphasized that policy is "not on preset course" with decisions made on a "meeting-by-meeting basis."

Powell reported "broad support" among committee members for holding rates steady at this meeting, including from non-voters, and said the committee will continue "looking to goal variables and let the data light the way."

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