Analysis: The Fed's "Dual Mandate" is Outdated, and Inflation May Remain Around 3.0%

BlockBeats News, September 19th. Edward Yardeni, a renowned Wall Street analyst and President & Chief Investment Strategist of Yardeni Research, stated in an article that the Federal Reserve explicitly adopted a 2% inflation target for the first time in January 2012. Although the FOMC did not set a specific unemployment rate target, as reflected in the Summary of Economic Projections (SEP), the current consensus is that the "longer-run" unemployment rate is around 4.2%. The unemployment rate in August was 4.3%, while the PCE inflation rate in July was 2.6%.

So why did the FOMC vote this week to cut the federal funds rate by 0.25 percentage points? This is the first rate cut of the year, and in the previous months, Federal Reserve officials had indicated a lack of urgency for rate cuts. During the press conference, Federal Reserve Chair Powell acknowledged that inflation is "a little bit above our 2% objective over the last year." However, he added that the FOMC is concerned about the significant slowdown in recent nonfarm payrolls.

Does this foreshadow a sign of the future: that the Federal Reserve may not be able to bring inflation down to its 2% target over the next few years because it sees the labor market needing more attention? When the Federal Reserve failed to achieve its inflation target between 2012 and 2021, it pursued an ultra-loose monetary policy. Even now, with inflation exceeding the target, the Federal Reserve may hesitate to tighten policy due to concerns about rising unemployment.

If that is the case, inflation may remain around 3.0%. (Jin10)