A key inflation gauge cooled in February, down from January’s 3% to 2.9%, the Federal Reserve Bank of New York reported Monday. The decline in the bank’s Multivariate Core Trend Inflation index is seen by many as a signal that underlying inflation pressures may be weakening.
Evidence of weakening inflation pressures
That news comes on the heels of last week’s report that prices increased 0.3% for the month of February. That increase was lower than the January report, but still showed prices rising at 2.5% year-over-year. The Federal Reserve has repeatedly vowed to maintain a more restrictive monetary policy until inflation reaches its target goal of 2%.
Government officials have pointed to last month’s so-called “core” prices as evidence that inflationary pressures are receding. Notably, core inflation excludes “volatile” costs like food and energy – which are essential needs for all consumers. Still government experts maintain that core inflation offers a more accurate assessment of the future rate of price increases.
Fed Chair signals renewed commitment to 2% goal
Meanwhile, Federal Reserve Chair Jerome Powell has responded to suggestions that the Fed may be relaxing its commitment to its 2% inflation target goal. Speaking on Friday, Powell told reporters that the target remains the same:
“We’re strongly committed to bringing inflation down to 2% over time. Markets believe we will achieve that goal and they should believe that because that’s what will happen over time.”
He also suggested that the current tightening of policy could start to reverse sometime in 2024 – if the economy responds as officials expect. The central bank’s most recent economic forecasts revised expected growth upward. At the same time, they’ve reduced their expectations for rising inflation.
Notably, Powell seemed to suggest in an interview last week that rates probably won’t go back to the “historically low levels” seen prior to the pandemic. With inflation pressures weakening, he signaled that the Fed could soon renew its focus on the central bank’s other mandate: maximum employment.
