The Fed’s New Approach Won’t Help the Economy Now

The U.S. Federal Reserve is changing the way it conducts monetary policy, a move that will have significant long-term consequences for interest rates, inflation and employment. But, unfortunately, this shift is not likely to be of much help to the current, fragile recovery.

Last week, Fed Chair Jerome Powell announced two important revisions to the central bank’s long-term monetary-policy framework. First, the central bank will try to achieve “inflation that averages 2 percent over time” — which means it will allow inflation to rise (or fall) above (or below) 2% based on where inflation has been and for how long. Second, the Fed will put more emphasis on keeping unemployment low: Instead of aiming to minimize “deviations” from the maximum sustainable level consistent with stable inflation, it will seek to minimize “shortfalls of employment from its maximum level.”