He fretted about the re-accelerating economy flying above the “below-trend” growth required to get to 2%. “We will keep at it until the job is done.”

The most important aspect of Fed Chair Jerome Powell’s speech today [8/25/23] at the Jackson Hole Symposium was his total and repeated smackdown of the folks that had either been clamoring for the Fed to raise its 2% inflation target, or had been predicting that it would raise it.

At the beginning of his longer and more nuanced speech today – and referring to his brief hammer speech last year – Powell said, “the message is the same: It is the Fed’s job to bring inflation down to our 2% goal, and we will do so.”

Amid discussing various inflation dynamics, the progress made so far, the lack of progress in some corners, and the uncertainties around it all, he showed this chart where Fed staff is forecasting that core PCE for July, to be announced on Aug 31, will re-accelerate:

And then he said: “2% is and will remain our inflation target. We are committed to achieving and sustaining a stance of monetary policy that is sufficiently restrictive to bring inflation down to that level over time.”

“We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” he said. And that objective is 2%, as tracked by the core PCE price index.

He said, “12-month core inflation is still elevated, and there is substantial further ground to cover to get back to price stability,” and this “price stability” he confirmed today is 2% inflation, as tracked by the core PCE price index.

“Getting inflation sustainably back down to 2% is expected to require a period of below-trend economic growth as well as some softening in labor market conditions,” he said.

But that “below-trend economic growth” isn’t happening right now, on the contrary, the economy has re-accelerated, and he said the Fed is “attentive to signs that the economy may not be cooling as expected.” And right now it isn’t:

“So far this year, GDP growth has come in above expectations and above its longer-run trend [Q1 GDP: +2.0%, Q2 GDP +2.4%, and Q3 has started out even stronger], and recent readings on consumer spending have been especially robust. In addition, after decelerating sharply over the past 18 months, the housing sector is showing signs of picking back up.”

“Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy,” he said…..

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