What can we takeaway from the Jackson Hole symposium?On August 30, 2020 by Mathias Belayneh
This week the Federal Reserve announced its plans for an important shift in its strategy to manage inflation.
The central bank will not increase interest rates in response to low unemployment levels and will not worry as much about low interest rates triggering inflation.
This was insinuated by a statement Fed chair Jerome Powell made, saying that “following periods when inflation has been running below 2 per cent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 per cent for some time.” Essentially, the Fed is now going to target an average of 2% inflation rather than a fixed 2%.
Off the back of his comments, longer-term rates have risen as investors now expect rising inflation in the future. This has been reflected in the yield curve which is steepening considerably, whilst the front end of the curve dipped with minimal effect.
It was also stated by Powell that “going forward, employment can run at or above real-time estimates of its maximum level without causing concern, unless accompanied by signs of unwanted increases in inflation or the emergence of other risks that could impede the attainment of our goals.”
This comes as the Fed aims for “broader” gains in the labour market so that economic inequality is tackled. Mr Powell highlighted the benefits of a strong labour market especially when it comes to “delivering life-changing gains for many individuals, families, and communities, particularly at the lower end of the income spectrum.”
Despite these measures that will be taken by the central bank to lay the foundations for a strong and inclusive growth, it is unlikely that they will be enough. The Federal Reserve will remain very dependent on the US government for additional pro-growth policies, fiscal stimulus and structural reforms that will result in higher productivity and greater economic security in households.
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