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Inflation may be stuck around 3%, but Fed Chair Jerome Powell says the story underneath the surface is more nuanced — and in some ways, closer to the central bank’s target than it appears.

At the post-decision press conference, Powell broke down the September CPI report and the factors driving prices higher, emphasizing that tariffs, rather than broad-based price pressures, are the primary culprit behind sticky goods prices.

“The September CPI report …was a little softer than expected,” Powell said. “Basically, you’ve seen goods prices increasing, and that’s really due to tariffs. And that’s compared to a longer-run trend of very, very mild deflation in goods. So that’s moving inflation up.”

He added that housing inflation, which had long been a thorn in the Fed’s side, is finally showing sustained improvement.

“The housing services inflation has been coming down and is expected to continue to come down,” he said. “That leaves the biggest category … services other than housing services. And that’s kind of been moving sideways over the last few months.”

Powell suggested that once you strip out the impact of tariffs, underlying inflation is running much closer to the Fed’s 2% target, likely around 2.3% to 2.4%, or just a few tenths of a percentage point above the goal.

“We’re absolutely committed to returning inflation to 2%,” he said. “If you look at longer-term surveys or market pricing, you will see that that’s a credible commitment. And there should be no question that that’s where we’re going.”