Fed Can’t Talk the U.S. Economy Into Inflation
As was made clear during the coronavirus crisis, the central bank’s influence now begins and ends with the financial markets.
Talk is cheap.
Photographer: Daniel Acker/Bloomberg
The Federal Reserve is stuck. On its own, the only way forward is for Chair Jerome Powell to talk a good game.
During a much-anticipated speech delivered virtually for the Kansas City Fed’s annual symposium traditionally held in Jackson Hole, Wyoming, Powell revealed changes to the central bank’s statement on longer-run goals and monetary policy strategy. The upshot — that the Fed would seek inflation that “averages” 2% over time, therefore allowing overshoots after periods in which it falls short of the target — was well-telegraphed to financial markets. Given the still-murky outlook for economic growth, it suggests interest rates could remain pinned near zero for the next several years.