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.