Powell Scraps “Make-Up” Inflation Playbook in Jackson Hole | SchiffGold
Federal Reserve Chair Jerome Powell used his Jackson Hole podium on August 22 to declare the end of the central bank’s three-year experiment with “flexible average-inflation targeting.” In its place, the Fed is reverting to a straight-forward but “flexible” 2 percent target, a move that comes as economic momentum cools and goods prices perk up. Powell warned that policy “is not on a preset course,” stressing that rate decisions will hinge on incoming data. Traders responded by nudging Treasury yields lower, while gold briefly punched up to $3,346 an ounce on Thursday—another reminder that investors still doubt the Fed’s ability to pin prices down without pinching growth.
The policy reset lands after three rate trims have pulled the federal-funds rate about 100 basis points off last year’s 5.25–5.50 percent peak, leaving the target range near 4.25–4.50 percent—closer to what officials call “neutral.” Yet the economy is already losing altitude. Payroll growth has slowed to a scrawny 35,000 jobs per month over the past quarter, and the Bureau of Labor Statistics quietly lopped 258,000 positions from May and June counts. A preliminary benchmark revision due in early September is expected to slice March employment “materially,” fueling suspicions that the labor market has been weaker than the headlines suggested.
Even so, the jobless rate sits at 4.2 percent, quits and layoffs remain subdued, and wage gains are only gently retreating. Slower immigration has thinned labor-force growth, meaning it now takes far fewer new jobs to keep unemployment steady—a dynamic Powell called “a curious kind of balance.” Meanwhile, tariffs imposed earlier this year are already filtering into store shelves, pushing core goods prices up 1.1 percent year-over-year and raising the specter of sticky inflation just as real GDP growth has slipped to an anemic 1.2 percent pace.
Against that backdrop, the Fed’s revamped “Statement on Longer-Run Goals” eliminates the 2020 language that treated the effective lower bound as a chronic menace and downplays any special focus on employment “shortfalls.” Instead, the Committee pledges to weigh both inflation and employment when the two objectives collide—an implicit nod to today’s uncomfortable trade-off. Echoing that tension, Powell vowed, “Come what may, we will not allow a one-time increase in the price level to become an ongoing inflation problem.”
Whether the central bank can execute this strategy remains an open question. History suggests that once tariffs, wage rigidity, and political pressure take hold, consumer price increases are rarely one-time affairs, and with political pressure rising against the Fed, it’s not obvious this strategy will be pursued for long.
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