The Fed changes its stance on inflation and keeps interest rates low


Today, Thursday, US Federal Reserve Chairman Jerome Powell unveiled a historic shift in the US central bank’s approach to controlling inflation, by effectively keeping interest rates low for a longer period. The Reserve Board is seeking, by adopting a more flexible position, for inflation to record an average of 2%. Powell said, “If inflation is below the target number, as in a long period of the past decade, then the council will allow inflation to rise moderately above 2% for some time.”

Powell said, “These updates are due to an economy that was growing at a slower pace in the past few years and inflation did not rise as expected, despite a record low unemployment rate before the Coronavirus pandemic.”

The changes come after a year-and-a-half review of the monetary policy framework of the Council’s Open Market Committee, and the launch of the largest change to the framework since its adoption in 2012.

“The economy is always evolving, and the strategy of the Open Market Committee to achieve its goals, that is, our policy framework, must be adopted to meet the emerging new challenges,” Powell said in an online speech to the symposium of central bankers and economists worldwide, which was held remotely this year.

“The biggest problem since years ago is that our economy has faced high and increasing inflation,” he said, adding that the Reserve Board now believes that “a strong labor market can continue at the same rate without causing an explosion of inflation.”

The Reserve Board recently cut interest rates to help, to cushion the blow it took from the Coronavirus pandemic, along with other measures, such as buying bonds and providing loans to support companies.


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