To the surprise of many, Federal Reserve chair Jay Powell struck a decidedly dovish tone in his press conference on Wednesday. This came immediately following the issuance of the central bank’s periodic policy statement in which the wording on inflation was hardened by stating that “in recent months, there has been a lack of further progress towards the committee’s 2 per cent inflation objective”.

I suspect that Powell’s rather relaxed dismissal of sticky inflation will prove appropriate, but not in the way he expects. Economic developments are likely to show that the Fed is unable to get to 2 per cent unless it is willing to impose large and unnecessary damage on the economy. Indeed, 2 per cent may not be the right inflation target for an economy going through so many structural changes, both domestically and internationally.

By brushing aside three months of higher-than-expected price and labour cost inflation, Powell initially triggered a significant fall in interest rates and a sharp rise in stocks before a retracement. His dovishness is by no means precedent setting. Indeed, some of Powell’s press conference remarks in the past have been more dovish than the actual committee discussions on policy, as shown by the release of meeting minutes a few weeks later.