Fed Changing Policy on Inflation and Unemployment

…monetary policy still operates under the existing assumption that such a tradeoff – i.e., a strong labor market and stable prices – actually exists.

by Guest Writer
The International Forecaster

…Powell Says Goal Is to Keep Interest Rates Lower for Longer. By Dave Allen for Discount Gold & Silver

Yesterday, Federal Reserve Chair Jerome Powell announced that the Fed will allow inflation to run higher than normal to support the labor market and broader economy. It’s a move that Powell calls a “robust updating” of Fed policy by implementing “average inflation targeting.” In other words, the Fed will permit inflation to run “moderately” above the Fed’s 2% target for an unspecified period of time after it’s run below that objective (such as now and the recent past).

The changes are part of a Fed blueprint called the “Statement on Longer-Run Goals and Monetary Policy Strategy,” first adopted in 2012.

That statement provides the framework for how the Fed approaches interest rates and overall economic growth. In reality, the move means the Fed will be less inclined to hike interest rates when the unemployment rate falls, as long as inflation doesn’t jump substantially at the same time.

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