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Inflation target will 'depend on the outlook’: NY Fed President

Yahoo Finance’s Brian Cheung joins Zack Guzman to discuss the Federal Reserve's outlook on U.S. recovery from the coronavirus.

Video Transcript

ZACK GUZMAN: It's been a few weeks since we have heard the Fed update their 2% inflation target policy here, and we've heard from Fed Chair Jerome Powell a few times as well talking about how he's not even thinking about thinking about raising rates. But if you listen to a lot of officials, they might not be thinking about thinking about how they're going to manage the overshooting their 2% inflation target either. And here to discuss that with us is Yahoo Finance's Fed Reporter Brian Cheung. And Brian, I think I nailed that. I think I've set that up right. I think that's right.

BRIAN CHEUNG: I think that's right. I mean, what Chairman Powell has really done is he's got everyone thinking about thinking about what's the definition of inflation that's going to moderately overshoot for some time, and we've heard from a number of Fed officials since the Federal Reserve delivered that, what they call very powerful, very strong forward guidance on September 16. But none of that speaks since that point in time has really offered any sort of clarity in terms of how high the Federal Reserve would allow inflation to go or for how long. So you do have the likes of, for example, Raphael Bostic from the Atlanta Fed saying he could be comfortable with 2.2, even 2.3% inflation. You have Chicago Fed President Charlie Evans saying he might even be comfortable with 2.5%.

But other than that, most of the other Fed officials, including Eric Rosengren with the Boston Fed have dodged that. And the New York Fed President John Williams saying to reporters earlier this week quote, "It's hard to say exactly what that amount should be or the amount of time it should be, because it will depend on the circumstances, will depend on what the outlook looks like and the various factors that go into that." Not very much clear from that statement what we mean by that, which means that the Federal Reserve could be offering its own flexibility there with how high and how long it's willing to let inflation go. It just seems like, at least for the time being, the Fed says we've got interest rates low, let's just worry about that right now.

ZACK GUZMAN: Yeah, I mean, and they can, you know, the Fed doesn't want to tie their hands here and want to leave himself some wiggle room, but we are seeing inflation rise in terms of the updates that we keep getting here. So eventually, they will have to start thinking about these things. But on that front, I mean, obviously, it all ties back to maybe trying to let the market know it could be longer rather than more pressing when they start thinking about rising rates, and I guess that's the main message they want to convey.

BRIAN CHEUNG: Absolutely, and it is certainly true that inflation is on the rise. Keep in mind, that's after a period of pretty strong disinflationary pressures during the COVID crisis in the depths of it. During April, inflation, as measured by core personal consumption expenditures, was just a 0.9%. Now, since that point in time, it has rebounded quite a lot. For August, the core PC figure was about 1.6%. All of those measures still well below 2%. Now, that trend could go upwards where we might even be overshooting 2% by the end of this year on a monthly basis. But, again, on an annualized basis, the Fed would like to see that overshoot 2% for some time. But as I just laid out, who knows what that means.