Federal Reserve leaders are moving toward abandoning a major policy shift introduced in 2020, which redefined how interest rates were set in response to economic conditions. That framework prioritized achieving full employment by allowing inflation to run above the 2% target temporarily, especially in an era of persistently low prices and near-zero borrowing costs. However, with inflation now elevated and more unpredictable, policymakers see the earlier strategy as outdated. Internal discussions indicate a pivot back toward more traditional approaches that emphasize price stability. The shift reflects broader concerns about maintaining credibility in inflation control and adapting to a new economic environment marked by greater volatility. This recalibration does not involve immediate rate changes but signals a foundational rethinking of the central bank’s long-term strategy.
— news from The Wall Street Journal
— News Original —
Powell Plans U-Turn on an Economic Strategy That Soured
Federal Reserve officials are preparing to quietly retreat from a signature policy innovation unveiled five years ago. n nIn 2020, officials revamped their approach to setting rates, focusing on the risks brought on by near-zero interest rates and low prices. Today, officials are preparing to scrap that approach, now viewed as no longer relevant when facing the opposite problem of high and more volatile inflation.