InvestorQ : What is the essence of the new Fed Policy announced by Powell on 27 August?
Arusha Ray made post

What is the essence of the new Fed Policy announced by Powell on 27 August?

Answer
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diksha shah answered.
2 months ago


Let me give you a quick background of this new policy approach of the Fed. There had long been a complaint that the Fed was behaving in a very short-term manner by deciding on Fed rates in each bi-monthly meeting. Now that remonstration has been set to rest!

On 27 August, Jerome Powell, the Chairperson of the US Federal Reserve, announced the long term monetary stance of the Fed. It is important because it shows a marked departure from the old practice of deciding rates based on target inflation rates and jobs.

The new plan has been in the making for close to 2 years and Powell had been personally spearheading the plan. The broad contours were finally announced on 27 August. Now the Fed will not be constrained to hike rates even if inflation crosses the 2% mark.

Rate action will now be part of a large policy statement with a more long term perspective. So, even if jobless level goes below 5% or inflation goes above 2%, there will be no pressure on Fed to hike rates. This indicates the US Fed could hold rates near 0% for next 5 years.