We get the Fed's favored inflation gauge tomorrow morning.
But there should be little suspense. Powell leaked it yesterday afternoon in his press conference.
He said PCE for the twelve months through November should be 2.5%. And the staff projections from yesterday's SEP (Summary of Economic Projections) suggest they see this month's number (the December PCE) ticking back down to 2.4%.
Let's take a close look at this "inflation target" concept.
The Fed issued a formal statement on the level (2%) and their preferred gauge ("the change in the price index of for personal consumption expenditures") back in 2012 (
here).
So, let's take a look at how they've done …
In the above chart, you can see they spent much of the post-Global Financial Crisis, pre-Pandemic decade running below 2%. And with this recent high inflation period, it leaves the 12-year average at 2.24%.
Keep in mind, in the middle of the decade-long bout with deflationary risks, the Fed told us that the inflation target was "symmetric."
And in 2020, when inflation was still sub-2%, Jerome Powell formalized this by saying they're just looking to "average" 2% over time. He was signaling that they would let the economy run hot (for an unspecified period of time), letting inflation run above 2%, to make up for the decade of below target inflation.
That's happening.
So, is the Fed really hyper-sensitive to this stall just above the inflation target, even if it persists for a while? Their own formal policy, and history, would suggest the answer is no.