US Fed Seeking Inflation that Averages 2% Over Time

  • 2020-08-30 12:00:00
  • Reporter

On August 27, US Federal Reserve Chair Jerome Powell introduced a new approach to setting U.S. monetary policy, which calls for allowing inflation and employment to run higher, in a shift that will likely keep interest rates low for years to come. 

Mr Powell said that, in a new strategy, the Fed will seek inflation that averages 2% over time-a measure that implies allowing for price pressures to overshoot after periods of weakness. It also adjusted its view of full employment to permit labour -market gains to reach more workers. The Fed’s revised statement emphasizes that maximum employment is a broad based and inclusive goal. This change reflects the US central bank’s appreciation of the benefits of strong labour market, particularly for many lower- and middle-income communities.   

This new approach gives the Fed the flexibility to keep interest rates low for years, letting inflation and employment run higher.

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