Lower for longer.
That’s what U.S. interest rates are going to look like for the foreseeable future, thanks to a shift in how the Federal Reserve measures and acts on both economic activity and inflation.
In prepared remarks at the Kansas City Federal Reserve’s annual Jackson Hole symposium, taking place virtually, Fed Chairman Jerome Powell said the Fed will shift its definition of “maximum employment,” and also amend its focus on inflation by relaxing its 2% inflation target.
The announcement, the Fed’s first policy framework change in more than right years, marks a new era in how the Fed approaches monetary policy, encapsulating a year-long strategy review of the central bank’s longer-term goals and monetary policy strategy.
For years, the Fed has focused on the two-fold mandate of raising interest rates to combat rising prices for consumer goods and services, and, at the same time, adjusting monetary policy to ensure its definition of “full employment” was consistently achieved.
But with inflation remaining entrenched well below the Fed’s 2% target and with definitions of what a job is and how it is defined, calculated and measured having changed dramatically in recent years, the Fed unanimously agreed on Thursday to amend its policy framework — saying it will base its interest rate decisions on more hard data, and less so on forecasts.
“The era of easy money is here,” said Mike Loewengart, Managing Director, Investment Strategy with E*TRADE Financial. “Loosening up on target inflation ushers in a new age of low rates for the foreseeable future.”
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