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A year ago Jerome Powell explicitly laid out his task and that of his committee peers: \u201cIt is the Fed\u2019s job to bring inflation<\/a> down to our 2% goal, and we will do so,\u201d he said<\/a>. <\/p>\n While inflation has come down, it has yet to reach this benchmark. Moreover, the lesser-considered half of the Fed\u2019s dual mandate\u2014unemployment\u2014is beginning to cause some trouble.<\/a><\/p>\n This factor has led JPMorgan Chase CEO Jamie Dimon to question whether the Fed\u2019s task is even achievable. <\/a><\/p>\n Speaking to CNBC<\/a> in an interview published yesterday, 68-year-old Dimon said: \u201cThere\u2019s a lot of uncertainty out there. I\u2019ve always pointed to the geopolitics, I always think the deficits, the spending, the quantitive tightening, the elections\u2014all these things cause some consternation in the markets so we\u2019ll have to wait and see.\u201d <\/p>\n \u201cDoes inflation really get back to 2%?\u201d the Wall Street veteran continued. \u201cI\u2019m a little bit of a skeptic on that.\u201d<\/p>\n This reasoning is based on future factors, he explained: \u201cI don\u2019t look as much at the short-term data as about the things that are inflationary but are in the future.\u201d<\/p>\n \u201cDeficits, spending, green economy, remilitarization of the world. They haven\u2019t really happened yet but they are going to happen\u2014and they\u2019re not really deflationary.\u201d <\/p>\n Dimon, who repeatedly highlights JPMorgan\u2019s preparation for a range of economic outcomes<\/a>, also isn\u2019t as certain as his peers about a soft landing for the economy. While analysts from the likes of UBS see a soft landing as its base case, Dimon gives it a probability of between 35% to 40%.<\/p>\n \u201cIt\u2019s always good to look at the odds of what you think as opposed to get set and say: \u2018That\u2019s the one thing that\u2019s going to happen,’\u201d Dimon added. \u201cThere\u2019s always a large range of outcomes and we will all get through that. And so I\u2019m fairly optimistic that if we have a mild recession, even a harder one, we\u2019d be OK.\u201d<\/p>\n \u201cOf course, I\u2019m very sympathetic to people who lose their jobs. You don\u2019t want a hard landing. But there\u2019s a lot of uncertainty out there,\u201d Dimon added. <\/p>\n While Powell has been clear that his mandate is to get inflation to 2%<\/a>, he did offer a moment of relief to markets when he said if the inflationary trend was headed the right way he would cut before the benchmark was hit. <\/p>\n \u201cIf you wait until inflation gets all the way down to 2%, you\u2019ve probably waited too long, because the tightening that you\u2019re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%,\u201d Powell told the\u00a0Economic Club of Washington D.C. in July. <\/p>\n At that time Powell was talking ahead of a release from the Bureau of Labor Statistics which threw a wrench in the works.<\/p>\n Last Friday the Labor Department\u00a0report<\/a>\u00a0showed the unemployment rate rose to 4.3%, triggering the Sahm Rule<\/a>, which indicates whether an economy is about to enter a recession, and kicking off a turbulent few days on the stock markets.<\/p>\n As maintaining employment is the second half of the Fed\u2019s mandate, analysts are hoping that a rate cut will be introduced in September to steady the employment market.<\/p>\n The balance of employment to inflation is a delicate one for the Fed: If employment rates are high this signals the economy is still hot. Even if inflation rates are coming down and employment remains high, the Fed cutting rates could trigger a burst of economic activity owing to cheaper borrowing costs and household spending. This, in turn, could force prices to quickly rebound.<\/p>\n The balancing of the two are among the reasons experts are calling for flexibility around targets. Among the proponents of this plan is Mohamed El-Erian, chief economic advisor at Allianz<\/a> and president of Queen\u2019s College at Cambridge University.<\/p>\n In an April opinion column for Bloomberg<\/a>, El-Elerian wrote: \u201cRather than maintain a policy reaction function anchored by excessive dependence on backward-looking data, the Fed would be well advised to take this opportunity to undertake a belated pivot to a more strategic view of secular prospects.\u201d<\/p>\n \u201cSuch a pivot would recognize that the optimal medium-term inflation level for the US is closer to 3% and, as such, give policymakers the flexibility to not overreact to the latest inflation prints.\u201d<\/p>\n<\/div>\n\nCuts before 2%<\/h2>\n
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