On September 19th, Edward Yardeni, a well-known Wall Street analyst and president and chief investment strategist of Yardeni Research, published an article stating that the Federal Reserve first explicitly adopted a 2% inflation target in January 2012. Although the FOMC did not set a clear unemployment rate target, as shown in the committee's Summary of Economic Projections (SEP), the current consensus is that the "long-term" unemployment rate is about 4.2%. The unemployment rate in August was 4.3%, while the PCE inflation rate in July was 2.6%.

So why did the FOMC vote this week to cut the benchmark federal funds rate by 0.25 percentage points? This is the first rate cut this year, and in the previous months, Fed officials have repeatedly stated that they are in no hurry to cut interest rates. At a press conference, Federal Reserve Chairman Powell acknowledged that inflation is "still somewhat high relative to our 2% long-term target." However, he added that the FOMC is concerned about the significant slowdown in recent non-farm payrolls.

Does this foreshadow the future: The Fed will not be able to reduce inflation to its 2% target in the coming years because it believes the labor market needs more of its attention? When the Fed failed to meet its inflation target between 2012 and 2021, it adopted an ultra-loose monetary policy. But even now that inflation is above target, the Fed may hesitate to tighten policy for fear of rising unemployment.

If this is the case, inflation may remain around 3.0%. (Golden Ten)