The Federal Open Market Committee on Thursday announced that it has approved changes in its written policy strategy that are widely seen as leading to an easier position of monetary policy over time.
In a statement, the Fed said it had adopted an “average inflation target” and acknowledged the benefits for a strong labor market.
The announcement of the new strategy was in time for the speech by Fed Chairman Jerome Powell after the Jackson Hole economic symposium, which will be held practically this year.
In the past, Fed presidents have used the conference to make major policy announcements.
“It is difficult to overstate the benefits of maintaining a strong labor market, an important national goal,” Powell said in his prepared remarks on the policy change.
That statement would not have come from a central banker a generation ago. In the past, strong labor markets meant that higher inflation was just around the corner and a reason to tap the brakes and raise interest rates.
It is now the Fed’s view that “a robust labor market can be maintained without causing an outbreak in inflation.”
The Fed’s strategy targets 2% annual inflation growth, but the Fed said it “seeks to achieve inflation that averages 2% over time.”
“After periods when inflation continues to fall below 2%, appropriate monetary policy is likely to aim to achieve moderate inflation above 2%,” the new policy says.
Global oversupply has created deflationary forces that have stunned foreign central banks as the traditional tool for cutting interest rates to boost employment is no longer effective. Too low inflation sucks energy out of economies. Foreign central banks have shifted their benchmark interest rates into negative territory to boost demand.
This is a circumstance that the Fed wants to prevent.
“We have seen this detrimental dynamic in other major economies around the world and have learned that once it starts, it can be very difficult to overcome. We want to do what we can to prevent such a dynamic from happening here,” he said. ‘said Powell.
The Industrial Industrial DJIA of Dow Jones,
was up 84 points on Wednesday and was committed to a roughly equal win at the opening clock on Thursday ahead of the Fed chairman’s speech.
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