U.S. inflation has cooled from post-Covid and Russia-war peaks, but the Fed remains fixated on its 2% target. The labor market, meanwhile, is softening sharply — NFP revisions and weak hiring show mounting downside risks.
Powell’s historic caution stems from the 1970s, but today’s economy is structurally different: lower energy intensity, weaker unions, globalized supply chains, and digital deflationary forces. Anchoring credibility at exactly 2% risks sacrificing growth and jobs for a number chosen in another era.
Our view: The Fed should acknowledge these structural shifts and pivot toward a more flexible framework — for example, a 2–3% inflation band — balancing credibility with present-day relevance. With employment now the bigger risk, Powell should guide policy with today’s conditions in mind, not yesterday’s battles.
Agris F1 