Powell's 'Evolution'

Powell opened his press conference today reminding reporters that the Federal Reserve is "strongly committed to achieving the monetary policy goals that Congress has given us: maximum employment and price stability."

But following the boilerplate language, the Fed chairman started to explain an "evolution of monetary policy." Some might see today's hawkish tone as less of an evolution and more of abrupt shift. It wasn't that long ago, after all, that Powell was talking about a transitory inflation environment. The expectation was that rising prices were a temporary condition because of the pandemic and supply chain pressures. That transitory view allowed the Fed to keep accommodative policies in place longer than many would have expected given the ongoing inflation readings.

In today's press conference, Powell made very clear his view had changed, though he also tried to justify his thought process. Here's how Powell answered one question about whether the Fed's pandemic stimulus was a mistake: 

We're coming out of ... the first really global modern pandemic, which looked at the beginning like it might cause a global depression. And so we threw a lot of support at it. And what's coming out now is really strong growth, really strong demand, high incomes and all that kind of thing.

People will judge in 25 years, whether whether we overdid it or not, but we are where we are, and we think our policies is the right one for for the situation that we're in.

And here's how, in Powell's words, transitory has given way to persistent. Maybe even entrenched: 

There's a real risk now, we believe, I believe that inflation may be more persistent, and that may be putting inflation expectations under pressure, and that the risk of of higher inflation becoming entrenched has increased. It's certainly increased. I don't think it's high at this moment, but I think it's increased.

And I think that's part of the reason behind our move today is to put ourselves in a position to be able to deal with that risk. And I think we are in a position to to deal with that risk. We need to see more data. We need to see how the inflation data and all the data evolve in coming months, but we are prepared to use our tools to make sure that higher inflation doesn't get entrenched.