Fed Policy Review: Communication Focus
- The Federal Reserve's review will shape its approach to managing the economy and communicating its intentions to the public, impacting financial markets and consumer confidence.
- Federal Reserve Chairman Jerome Powell said Thursday the central bank will conduct its five-year monetary policy framework review,emphasizing improved communication to address economic uncertainty.
- The Federal Open Market Committee, or FOMC, will explore ways to better communicate its policy, especially concerning forecasts, risks and overall uncertainty, Powell said.
Fed to Reassess Monetary Policy Framework, Focus on Communications
Federal Reserve Chairman Jerome Powell said Thursday the central bank will conduct its five-year monetary policy framework review,emphasizing improved communication to address economic uncertainty. Powell made the declaration in prepared remarks at the Thomas Laubach Research Conference.
The Federal Open Market Committee, or FOMC, will explore ways to better communicate its policy, especially concerning forecasts, risks and overall uncertainty, Powell said. The review is slated to wrap up before the end of summer. Powell noted that strategies must evolve with the economy.
A previous review saw the Fed adopt average inflation targeting, which allowed inflation to briefly exceed the 2% target to offset prior low-inflation periods. However, the COVID-19 pandemic in 2020 made this approach less relevant, Powell said.
As 2020, the economic landscape has shifted, with longer-term interest rates rising, driven by real rates rather than inflation expectations, Powell noted. he also cautioned that inflation could be more volatile, with potential supply shocks creating challenges for both the economy and central banks.
“The structure of the economy evolves over time, and monetary policymakers’ strategies, tools, and communications need to evolve with it,” Jerome Powell, Federal Reserve Chairman said.
The Fed will examine its communication methods, especially the consensus statement issued after each FOMC meeting. Participants have suggested reconsidering the language around shortfalls, Powell said.
The review will also address how policymakers communicate forecasts and economic uncertainty.Powell stressed the importance of fostering a broader understanding of economic uncertainty, especially during periods of frequent or significant shocks.
What’s next
The FOMC will continue its discussions and analysis, with the goal of finalizing the monetary policy framework review by the end of the summer.