August 28, 2020

Fed Chair Powell discusses monetary policy framework, future during Jackson Hole speech


Federal Reserve Chair Jerome Powell, in a webcast speech Thursday at the Federal Open Market Committee's (FOMC) annual retreat in Jackson Hole, Wyo., discussed the results of the Fed's first-ever public review of its monetary policy framework and its newly released statement on longer-run goals and monetary policy strategy.

As a result of the review, Powell announced the FOMC’s adoption of “a flexible form of average inflation targeting.” Under the new framework, following a period where inflation falls below the committee’s 2 percent objective, “appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.”

"The committee's shift towards an average inflation target means we can expect the zero-rate policy to last even longer  as the economy works its way out of this recession," said NAFCU Chief Economist and Vice President of Research Curt Long.

Powell indicated that the Fed began the year-long review in efforts to assess monetary policy strategy, tools, and communications efforts that would "best foster achievement of our congressionally assigned goals of maximum employment and price stability over the years ahead in service to the American people."

During his speech, Powell outlined four key economic developments that motivated the Fed's review:

  • the decline of the longer-run growth rate of the economy;
  • the falling general level of interest rates in the United States and around the world;
  • the record-long expansion, which ended earlier this year, leading to an increase in labor force participation; and
  • that the historically strong labor market did not trigger a significant rise in inflation.

Additionally Powell confirmed that the committee plans to conduct a public review of its strategy, tools, and communication practices roughly every five years.

Read Powell's full remarks.

NAFCU is currently preparing for a meeting with Federal Reserve Governor Michelle Bowman later this year; member credit unions are encouraged to share their feedback on key issues to help inform that meeting through the association's annual survey. Responses are due Sept. 16.