MNI INTERVIEW: Dallas Fed Giannoni Sees Trend Inflation At 2%

By Jean Yung

     WASHINGTON (MNI) - An internal Fed gauge of underlying U.S. inflation

points to an eventual return to the Fed's 2% target, Federal Reserve Bank of

Dallas research director Marc Giannoni told MNI in an interview last week. 

     He cited the Dallas Fed's Trimmed Mean PCE inflation rate, which excludes

the most extreme price changes in consumer goods and services each month and has

registered 2.0% or higher every month since May 2018. Headline PCE inflation,

the Fed's preferred measure for consumer inflation, turned in at 1.3% in

October, while core PCE inflation was 1.6%. 

     "One-off price declines earlier this year have been a drag on PCE

inflation, but we don't see the whole distribution of price changes coming down

very much from 2%," Giannoni said. "That's what the Trimmed Mean is telling us."

     Fed Chair Jay Powell also earlier in the year cited the alternative

inflation measure in public comments as reason to be confident that inflation

was headed back toward the 2% target. Dallas Fed researchers have shown the

Trimmed Mean measure better strips out noise from month to month. 

     "I don't see much indication that inflation will take longer or shorter

than before to revert back to 2%," Giannoni said. 

     He acknowledged that the Fed's official inflation target is headline PCE

inflation and that has been below target for some time, something "that's not

desirable in the longer run." Inflation expectations have also drifted lower in

recent years. 

     The Fed is in the midst of a year-long review of its policy framework,

including whether officials should target 2% inflation on average over a longer

period of time. 

     No decision is expected until mid-2020. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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