Update, July 11, 2024: This article has been updated to include numbers from the Consumer Price Index released Thursday.

If you’re sick of high prices for the stuff you 💞buy every day, Federal Reserve Chair Jerome Powell has some bad news for you: prices aren’t ever going down—not if he can help﷽ it. 

In his second day of testimony before Congress Wednesday, Powell stuck to the script he laid out the day prior. He once again declined to say exactly when the central bank might cut its in🌌fluential benchmark interest rate, which is its main tool for controlling inflation. 

Instead, he explained to the House Finance Committee the Fed’s strategy for fighting price increases while preserving the labor market would crucially include not letting inflation get too low. 

Fed's Goal is to Keep Inflation at About 2%

Powell’s testimony treaded familiar turf but did shed some light on how the Fed is thinking about its battle against rapid price increases. Powell emphasized that the central bank’s goal is to keep prices for the things people buy increasing by an average of 2% per year, not to actually see prices stagnate or go down. 

To that end, the Fed will likely 🧜cut the fed funds rate—putting downward pressure on interest rates for all kinds of loans and stimulating the economy—before inflation has fallen to the 2% goal line.

“You don't want to wait until inflation gets all the way down to 2% because inflation has a certain momentum,” Powell said in response to a question from Republican representative Mike Flood from Nebraska. “If you waited that long, you’ve probably waited too long, because inflation will be moving downward and will go well below 2%, which we don't want.” 

So What's the Problem With Prices Going Down?

The exchange highlighted a disconnect between the way experts, economists, and policymakers ⛄talk about inflation, and the way most people think about it.

The Federal Reserve is tasked with keeping prices stable, which it defines as a 2% annual increase. But what many Americans want after years of inflation running well over that level is for prices to go down. In other words, they 澳洲幸运5官方开奖结果体彩网:want deflation, not disinflation.

A November YouGov poll showed that 64% of U.S. adults wanted “lower prices on goods, services, and gas” as a sign of a good economy. Only 20% wanted higher wages even though pay has just as big an impact on buying power for most households. 

So, why can’t we have a l𒁃ittle bit of deflation?

Prices for individual items such as gas may rise and fall for benign reasons, and broad measures of prices, such as the Consumer Price Index, occasionally dip into negative territory on a month-to-month basis. That happened in June, when overall 澳洲幸运5官方开奖结果体彩网:consumer prices fell 0.1% thanks to a decre♋ase in gas prices, seasonally adjusted.

However, widespread price decreases for all kinds of items over long periods typically only happen when something has gone horribly wrong with the economy. The only period of sustained deflation since the government started tracking prices 澳洲幸⛦运5官方开奖结果体彩网:happened during the Great Dep🥃ression.

Why The Fed Fears Deflation

That’s because in the logic of supply and demand in a free market, p🔴rices only go down when the supply for things increases, or demand plumme🦋ts. 

During a recession, deman𝔍d falls because people are losing their jobs and no longer have money to spend. Businesses respond to lower demand by laying off workers in what can be a vicious cycle. The Fed aims to avoid this: when unemployment starts to rise, signaling a potential recession, the Fed’s playbook is to cut interest rates, putting more money into t☂he economy and stimulating demand. 

And indeed, the labor market is finally weakening as a result of the Fed’s campaign of anti-inflation rate hikes, which began in March 2022. After several months of upticks, the unemployment rate in June 澳洲幸运5官方开奖结果体彩网:stood at 4.1%, the highest since♏ Novemb⛎er 2021. 

As stress in the labor market mounts, Powell has started to openly question whether it’s time for the Fed to shift from inflation-fighting mode to preventing job losses. Ac🌠cording to the central bank’s dual mandate given to it by Congress, it must do both. 

“For a long time we've had to focus heavily on the inflation mandate, but I think now we're getting to the place where the labor market is getting pretty much in balance to where it needs to be, and so we're looking at both,” Powell said Wednesday.