New Fed Chair Clarifies Commitment to Curb Inflation Below 2% Despite Political Pressure

Jerome Powell, the new Chair of the Federal Reserve, reaffirmed the central bank's firm commitment to reducing inflation to its 2% target during a panel at the ECB Central Banking Forum in Sintra, Portugal. Speaking for the first time since his initial press conference two weeks ago, Powell emphasized that current price levels are too high and warned that anyone expecting the Fed to tolerate inflation above 2% will be disappointed. He stressed the Fed's independence, noting that it will act to restrain inflation regardless of President Donald Trump's preference for lower interest rates.

Powell highlighted the recent Supreme Court ruling supporting Fed Governor Lisa Cook as a strong signal of the Fed's autonomy, allowing it to focus on its mandate without political or judicial interference. Despite rising inflation data, including a 3.4% increase in the Fed's preferred core PCE inflation measure in May, the highest since October 2023, Powell declined to provide explicit guidance on future interest rate moves. He humorously described upcoming Fed meetings as a "good family quarrel" but avoided elaborating further.

The Fed Chair also discussed the tools at the Fed's disposal, emphasizing interest rates as the primary and fairest instrument for monetary policy, affecting mortgage and credit markets directly. On the impact of artificial intelligence, Powell acknowledged its current demand-side inflationary effects but refrained from predicting long-term consequences, leaving it to the Fed to determine if AI will cause broader inflationary pressures.

Powell concluded on an optimistic note, citing strong structural productivity growth in the U.S. over the past four quarters, even before the AI surge, suggesting an improving growth potential. His remarks come amid volatile energy prices influenced by U.S.-Iran tensions and ongoing geopolitical risks, underscoring the complex inflationary environment the Fed faces.