Change of course in the Fed? Jerome Powell proposes to review the rates policy

The president of the Fed, Jerome Powellsaid key elements such as projections of employment and inflation, They should be reconsidered to have a more current approach to monetary policy. This taking into account the inflationary experience of recent years and The possibility that the supply shocks and associated price increases are more frequent in the coming years.

“We may be entering a period of more frequent, and potentially more persistent supply shocks, a difficult challenge for the economy and central banks,” Jerome Powell said at the opening of a two -day conference in which he stated that he reconsider the current approach of the Fed monetary policy, which was adopted in 2020 when the economy was still marked by the pandemic.

In this regard, he said that “The environment economic It changed significantly since 2020, and our review will reflect our evaluation of these changes. “

Powell’s signals

The FED president said he expected the inflation of The prices of April personal consumption expenses would have fallen to 2.2%a warm reading but that probably does not reflect the upcoming price increases driven by tariffs.

Five years ago, the Fed reformulated its approach to leave more space to lower unemployment rates and promised to use high inflation periods to compensate for the years in which inflation was weak, something common between 2010 and 2019.

The inflation that took off after that, and the emerging state of the world economy, means that this approach may need a rethink, Powell said.

“In our discussions until now, the participants indicated that they thought it would be appropriate to reconsider language around deficits.” of employment, a change adopted so that the Fed does not consider an unemployment rate in itself a sign of inflation risk, Powell said.

As for the price rise, he said: “At our last week meeting, we had a similar opinion about the average inflation target. We will make sure that our new statement of consensus is robust before a wide range of economic environments and developments. “

Your comments point to possible extensive reviews of a strategy that had been seen in its beginnings as an important change for Fed, with a willingness to assume more risks in favor of a stronger labor market and to tolerate greater inflation after periods of weakness.

But “the idea of ​​an intentional and moderate exception was irrelevant to our monetary discussions and has continued to be so today” after the inflation of almost two digits that occurred during the economic reopening after the pandemic, Powell said.