Jerome Powell targets 2% average inflation, focus shifts to jobs
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 US central bank will seek to achieve inflation averaging 2 per cent over time, offsetting below-2 per cent 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 labour 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 US 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 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.