(Reuters) – The Federal Reserve on Thursday rolled out an aggressive new strategy to restore the United States to full employment and lift inflation back to healthier levels in a world where it now believes that “downward risks to employment and inflation have increased.”
Under the new approach, laid out in a fresh statement on the Fed’s longer-run goals and monetary policy strategy approved by all 17 of its policymakers, the U.S. central bank will seek to achieve inflation averaging 2% over time, offsetting below-2% periods with higher inflation “for some time,” and to ensure employment doesn’t fall short of its maximum level.
“Our revised statement reflects our appreciation for the benefits of a strong labor market, particularly for many in low- and moderate-income communities, and that a robust job market can be sustained without causing an unwelcome increase in inflation,” Fed Chair Jerome Powell said in prepared remarks for a speech explaining the changes.
With the U.S. economy in a deep economic crisis and just months before Americans vote in a contentious election, the Fed’s new approach is both an acknowledgment of fundamental changes in the economy that began well before the coronavirus pandemic, and a map for how the Fed plans to conduct policy in a world where weak growth, low inflation and low interest rates are seen as here to stay.
With tens of millions of people out of work because of the fallout from the pandemic and the campaign for the Nov. 3 presidential election fast underway, the Fed’s transformation of the way it manages monetary policy could result in it keeping rates lower for longer than previously expected, although the Fed made no explicit promises on that front.
Powell is speaking at the Fed’s annual summer symposium, an event that is usually held in the mountain resort of Jackson Hole, Wyoming, but is being conducted virtually this year because of the pandemic. After this week’s event and the mid-September policy meeting, Fed officials will not meet again until the day after the election.
The Fed’s framework review began nearly two years ago through public hearings and research to explore how monetary policy should be adapted for a low interest rate environment. On Thursday it said it could conduct a new review of policy every five years.
Powell laid out a case for why low unemployment is a positive for the economy, especially for less-advantaged groups like Blacks.
“It is hard to overstate the benefits of sustaining a strong labor market, a key national goal that will require a range of policies in addition to supportive monetary policy,” he said.
Source: Economy - investing.com
