The Federal Reserve is seeking flexible average inflation targeting relative to jobs growth to enable it to deal with the novel coronavirus crisis and is unlikely to raise US interest rates until inflation overshoots its long-held 2 percent target, Chairman Jay Powell said on Thursday
WASHINGTON (Pakistan Point News / Sputnik - 28th August, 2020) The Federal Reserve is seeking flexible average inflation targeting relative to jobs growth to enable it to deal with the novel coronavirus crisis and is unlikely to raise US interest rates until inflation overshoots its long-held 2 percent target, Chairman Jay Powell said on Thursday.
"Our approach could be viewed as a flexible form of average inflation targeting," Powell said in unveiling the Federal Reserve's Monetary Policy Framework Review. "If inflation expectations fall below our 2 percent objective, interest rates would decline in tandem."
Since the end of the 2008 financial crisis, the Federal Reserve has struggled to hit its 2 percent inflation target. Following the outbreak of the novel coronavirus crisis in March, the US central bank has slashed the interest rate nearly to zero.
Powell said he hoped the Federal Reserve's new approach will allow inflation to float higher than 2 percent before interest rates are raised thereby changng the landscape for economic and jobs recovery.
While it was counterintuitive for the Federal Reserve to want higher inflation, Powell said it was "hard to overstate the benefits that higher levels of employment have for racial, ethnic minorities and others left behind for too long".
The US economy shrank 5 percent in the first three months of 2020 and nearly 33 percent in the second quarter due to the measures implemented to curb the novel coronavirus.
On the employment front, the economy lost some 21 million jobs between March and April at the height of lockdowns and other restrictive measures. The economy has regained about half of those jobs since as the economy reemerges.
