Overview

• The Federal Reserve has convened a two-day conference in Washington to evaluate its 2020 monetary policy framework, focusing on employment shortfalls and average inflation targeting.
• Chair Jerome Powell emphasized the need to adapt the framework to an evolving economic environment, including the possibility of more frequent and persistent supply shocks.
• The 2020 framework prioritized full employment and allowed inflation to exceed targets temporarily, but officials are reconsidering its effectiveness after pandemic-driven inflation challenges.
• Powell acknowledged that the framework's language on employment and inflation may have delayed the Fed’s response to rising prices, prompting calls for clearer and more flexible guidance.
• Formal revisions to the framework are expected in the coming months, with Powell highlighting the importance of ensuring future policies can address diverse economic conditions effectively.