![]() ![]() ![]() The Fed released an updated statement at the end of August 2020. The fact that unemployment has reached low levels without inflation is good news, since a strong labor market has widespread benefits, but the lack of an inflation response to low unemployment is another indication that reaching the inflation target might take longer than previously thought. The inability to reach the inflation target is one indication that the Fed has insufficient firepower. The lower neutral rate means that the short-term interest rates that the Fed influences will generally be closer to (and more often hit) zero than had been previously contemplated-and that gives the Fed little room to cut interest rates in a recession. And third, unemployment fell to a 50-year low. ![]() Second, inflation and inflation expectations continued to remain below the Fed’s 2 percent target. In 2019, three key economic developments drove the FOMC to review that framework: First, estimates of the neutral level of interest rates-the level associated with full employment and inflation at target-continued to fall around the world. That statement included the Fed’s first formal and public commitment to an inflation target of 2 percent. The Federal Open Market Committee (FOMC)-the Federal Reserve governors in Washington and the presidents of the 12 regional Fed banks-first published a Statement on Longer-Run Goals and Monetary Policy Strategy in 2012. What is the Federal Reserve’s “Statement on Longer-Run Goals and Monetary Policy Strategy”? ![]()
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