The US Federal Reserve officials believe that they must reconsider the key elements related to the labor market and inflation in their current approach to monetary policy, considering that the experience of inflation in recent years and the possibility that the shocks related to supply and the associated price increases could become more frequent in the following year.
Jerome Powell, the head of the US Federal Reserve. Photo Today
“We could enter a period of more frequent supply shocks And, potentially, more persistent, which is a difficult challenge for economy and central banks. The economic environment has changed significantly from 2020, and our review will reflect the assessment of these changes“, Powell said in the opening of a conference where the current approach to the FED, adopted in 2020 will be discussed, when the economy was affected by pandemic.
Powell has not referred to the current monetary policy or the prospects of the economy, although he said he was expecting inflation in April to 2.2%, although the evolutions still do not reflect the price increases that will come from customs duties, writes Reuters.
However, they reflect “an unusual historical result” of uninhabited disinflation to the economy, “an easy landing” that takes place according to the current Fed strategy.
Five years ago, Fed reformed his approach, in order to have more maneuvering space to reduce unemployment, and committed to use periods with high inflation to compete in the years in which inflation was reduced, a frequent phenomenon between 2010 and 2019.
The inflation that later increased and the emerging state of the global economy means that this approach may require rethinking, Powell said.
“In our discussions so far, the participants indicated that it would be appropriate to reconsider the formulation regarding the job deficit, a modification adopted so that Fed does not consider a low unemployment rate itself a sign of inflationary risk.“Powell said.”At our meeting last week, we had a similar opinion on the average inflation targeting. We will ensure that our new consensus statement is robust at a wide range of environments and economic evolutions. ”
His comments indicate possible extensive revisions of a strategy that had initially been considered a major change for the FED, with the desire to take more risks in favor of a stronger work market and with the desire to tolerate a greater inflation after periods of weakness.
But “The idea of an intentional and moderate overcome has proven irrelevant For our political discussions and it has remained so until today ”following the inflation of almost two digits that took place during the reopening of the pandemic, Powell said.
