MNI BRIEF: Powell-Fed Faces Two-Sided Risks, Bumpy Inflation

Federal Reserve Chairman Jerome Powell on Friday said the central bank he leads is facing two-sided risks over the decision to begin an easing cycle, and reiterated the Fed needs to see more evidence about the path of inflation, whose path lower remains bumpy.

"The decision to begin to reduce rates is a very, very important one, because the risks are two sided," he said in Q&A at a San Francisco Fed conference. "If we reduce rates too soon there's a chance that inflation would pop back and we'd have to come back in and that'd be very disruptive. That would not be the good thing for the economy. There's also a risk that we would wait too long, and in that case there would be unnecessary, unneeded damage to the economy and perhaps the labor market." (See: MNI POLICY: Fed's Rate Cut Timeline Shaken By Inflation Bumps)

"The risks of the two goals are coming into better balance," Powell said referring to the central bank's dual mandate. "We're not just thinking about inflation, that's no longer appropriate. So we're thinking about both, we're thinking about the risks to both now."

Powell said PCE inflation released Friday by the Commerce Department were in line with his expectations, also adding that the economy continues to be strong while inflation continues to be bumpy. Powell reiterated that the Fed is looking for evidence to ascertain whether recent strong inflation readings are signs that inflation is settling above target.

"We've been saying all through last year and this year that we're making progress, we've noted that progress, we haven't overreacted to it. We didn't overreact to the good data we had in the second half of last year," he said. "We need to see more. You won't hear us overreacting to these two months that are higher."