Inflation Remained Low In April, But How Long Can Monetary Policy Remain Tight?

2025-06-02 07:09:00 ET

Summary

• The Personal Consumption Expenditures Price Index grew at an annualized rate of 1.2 percent in April 2025, marking the second consecutive month of below-target inflation.
• The Fed has generally overshot its inflation target over the last four years. Headline PCEPI has averaged 4.0 percent per year since April 2020, whereas core PCEPI has averaged 3.9 percent.
• Had the Fed announced in advance that it would symmetrically target inflation at 2.0 percent (or, some lower rate), there would be little cause for concern. But the Fed has not done that.

By William J. Luther

By undershooting its inflation target after clearly stating it would not do so, the Fed risks surprising the public—and perhaps triggering a recession. ...

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