Federal Reserve -President Jerome Powell lives the Federal Reserve Bank or Kansas City’s 2025 Jackson Hole Economic Symposium, “Labor markets in transition: demography, productivity and macro -economic policy” at in Jackson Hole, Wyoming, US, 21 August 2025. Photocredit: Reuters/Jim Urquhart
Federal Reserve -chairman Jerome Powell announced an updated operational framework on Friday that was more focused on traditional efforts to promote price stability, which was what a difficult effort had been a policy for the central bank for his work mandate about its inflation objective.
Nodding in the economic landscape in the past five years, the new operational edict moves the framework of the FED away from what was a ubiquitous challenge of the monetary policy that had to work at very low interest rates due to a longer period of lower inflation with regard to the central bank 2%. That environment has informed the policy frame of 2020.
“There is a lot of continuity with statements from the past” in the new framework, Powell said in a speech for international economists and policy makers at the annual Jackson Hole conference of the FED in Wyoming.
Low-rate “makeup” strategy removed, emphasized the double mandate
“We continue to believe that monetary policy must be future-oriented and consider the delays in its effects on the economy” and that the FED risks for both its work and inflation mandates must be balanced when setting the monetary policy, Powell said. He added that setting numerical goals for things like the ideal level of work is ‘unwise’.
Powell said in the new framework “we removed the language” about the low-rate environment and “we have returned to a framework of flexible inflation targeting and eliminated the ‘make-up’ strategy” in the 2020 framework, how last the FED the general operational principles updated.
“Our revised explanation emphasizes our dedication to act strongly to ensure that inflation expectations remain well anchored in the longer term, in favor of both sides of our double mandate,” Powell added.
Economists expect higher rates longer
Kathy Bostjancic, Chief Economist for Nationwide, said that the update of the policy strategy has shown that “the FED had returned to his pre-known framework that had a symmetrical focus on both achieving inflation and employment goals from the lake asymmetrical dialing and concern”
Joe Brusuelas, chief economist at RSM US LLP, said that the framework would probably orient the central bank at higher interest rates. “By returning to a focus on price stability and an inflation objective of 2%, this means that all involved must prepare for higher rates longer, despite a rising probability of speed reductions in the short term,” he said. The assessment of the operational principles of the FED was generally expected. The minutes of the policy meeting of the Central Bank of July 29, July, released on Wednesday, had noted that the overhaul would have been designed to be robust over a wide range of economic conditions. “
That was a nod to the fact that the last iteration was quickly flooded by the events of the COVID-19 Pandemie. The agenda then demanded that the FED would allow inflation to transfer the target of 2% to compensate for periods in which the central bank had achieved the goal.
Powell said under the new principles: “We take into account the degree of abnormalities of our goals and the potentially different time horizons on which each is expected to return to a level that is consistent with our double mandate.”
Impact of Pandemie
The last framework was accepted in the context of a FED that had fought at that time with a longer period of very weak inflation pressure, which in turn had led to a long period of very low interest rates in the short term. Low rates complicated the ability of the Fed to respond to economic shocks.
The pandemic, which maintained in the spring of 2020, which led to a huge stimulus round of the FED and the US government, soon led to some of the highest inflation pressure in decades. That quickly put the FED on a policy path that had little to do with the objectives of the Framework 2020. Inflation that started to roar in 2021, which made it aggressive food increases, has largely decreased and the central bank has been able to reduce its interest rate objective to the reach of 4.25% -4.50%. Many investors expect that the central bank will be able to lower the rates in September, although a number of FED officials suggested on Thursday that rate-related inflation threats can still keep them on the sidelines.
But few expect the Fed to be able to return to the low interest rates that are seen before the pandemic in the midst of changes in the economy and a large increase in government loans that collectively raise the long -term level of short -term interest rate.
Published on August 23, 2025
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