Washington: 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, the U.S. central bank will seek to achieve inflation averaging 2% over time, offsetting below-2% periods with higher inflation “for some time,” and to ensure employment doesn’t fall short of its maximum level, reports Reuters.
“Our revised statement reflects our appreciation for the benefits of a strong labor 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 U.S. economy in a deep economic crisis, the Fed’s new approach is both an acknowledgment of fundamental changes in the economy that began well before the coronavirus 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.
With tens of millions of people out of work because of the fallout from the pandemic and the campaign for the Nov. 3 presidential election fast underway, the Fed’s transformation of the way it manages monetary policy could result in it keeping rates lower for longer than previously expected, although the Fed made no explicit promises on that front.