Below is a quick summary of the article in the WSJ by Nick Timiraos, here is the link to the full article for those who want more details.
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Strategic U‑Turn in the Works
The Federal Reserve plans to retreat from key elements of its 2020 monetary policy framework, which allowed inflation to run modestly above its 2% target to compensate for past undershoots and deprioritized the risks of a too‑low unemployment rate -
Jackson Hole Speech as the Reveal
Powell is expected to unveil these framework changes in his final Jackson Hole address as Fed chair -
No Immediate Policy Impact
The revisions will not affect short‑term rate decisions but reflect a broader, long-term shift in how the Fed balances its dual mandate of price stability and maximum employment -
Origins of the 2020 Strategy
The 2020 strategy responded to the challenges of near‑zero interest rates and subdued inflation, aiming to prevent premature rate hikes and support job growth during economic stagnation -
Lessons from the 2021–22 Inflation Surge
Critics argue that the 2020 framework contributed to delayed rate hikes amid rising inflation. Indeed, rate increases only began in March 2022, well after inflation surged to levels not seen in decades -
Debate Over Framework vs. Forecast Errors
Economists are split on the reasons for the delay: some blame the framework for overemphasizing employment, while others point to flawed inflation forecasts. -
Planning for a Resilient Future
The Fed aims for a more robust policy structure capable of handling shocks that simultaneously push inflation and unemployment upward, one that isn’t easily overturned by short-term economic fluctuation
This article was written by Arno V Venter at investinglive.com.
