But it is a change from the Fed’s consensus view, even in the recent past. As unemployment dropped to a 50-year low and wages gradually climbed, officials thought that the labor market must be approaching full employment. They lifted borrowing costs nine times between late 2015 and late 2018 to prevent a tight job market from spurring runaway wage growth that would cause much higher inflation.
Instead, price increases have come in shy of the Fed’s 2 percent goal. Central bankers like to have some inflation — albeit a low and steady level — because it leaves them room to cut interest rates, which include price gains, in a downturn.
Now, the Fed is watching too-low inflation warily, Mr. Powell indicated Monday.
“It is essential that we at the Fed use our tools to make sure that we do not permit an unhealthy downward drift in inflation expectations and inflation,” Mr. Powell said.
Japan and, more recently, Europe’s experiences have shown that when consumers expect weak price increases, it can bleed through to actual inflation, he said, leaving central bankers less room to lower interest rates.
While the Fed has been paying attention to consumer strength in its policy discussions, there have been “a few yellow flags including muted inflation and weakness in manufacturing,” Mr. Powell said. “In addition, global growth and trade have presented ongoing risks and uncertainties.”
Mr. Powell spent most of Monday in East Hartford, Conn., with his colleague Eric Rosengren, the president of the Federal Reserve Bank of Boston, touring the town and hearing about a career-development program that the Boston Fed has organized there as part of its Working Cities Challenge.
Participants told stories about how they returned to training and work from the labor market’s sidelines, and spoke about the challenges of walking away from some benefits programs and finding affordable child care.