The federal government meets for the first time since Powell signaled a policy shift

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Since Chairman Jerome Powell said last month that the central bank needs to shift its focus away from preventing high inflation from settling and promoting a rapid recovery of employment from the pandemic. The Board will meet for the first time on Tuesday and Wednesday.

Pivot raises the prospect that the Fed’s post-meeting statement, a document analyzed by the market as an indication of future policy potential, may be reviewed at the end of Wednesday’s meeting.

“Some meetings make small changes, others make big changes, and this feels like a meeting where they are making bigger changes,” says a professor at Yale School of Management. William English, a former Fed senior economist, said.

Federal Reserve Chair Jerome Powell discussed in the Senate about the factors driving continued inflation and the risks that Omicron variants pose to the economy. Photo: Al Drago / Bloomberg News

In parliament Testimony November 30th and December 1stPowell suggested that the central bank’s statement stop considering high inflation as “temporary,” partly because the terminology was confusing. Instead, the Fed can easily explain the various forces that contribute to rising inflation, some of which do not expect authorities to sustain.

“Almost all forecasters expect inflation to fall significantly later next year,” Powell said on December 1. I’m not entirely sure about that. “

Authorities may also rewrite some of the statements stating that inflation has fallen below 2% since September 2020. “The language doesn’t seem to touch a bit on what’s going on,” Powell said last month.

The Federal Reserve wants to end it before raising interest rates, so it’s ready to expedite the end of their bond purchase stimulus program this week. They suggest that they are likely to finish it by March instead of June, which will allow them to raise interest rates sooner.The move to accelerate the process The most specific signs of their changing inflation outlook..

A statement from the Federal Reserve Board or other parts of Mr. Powell’s post-meeting press conference may provide clues as to how authorities see the outlook for rate hikes next year.

Last year, the Fed introduced specific guidance on interest rates as part of formalizing a new policy framework that calls for a period of inflation just above the 2% target to make up for past shortfalls.

The Federal Reserve has promised to keep interest rates near zero until two tests are met. First, they want inflation to stay below 2%. Many officials think they have achieved that test, but they haven’t said this yet in their policy statement.

Second, they want the labor market situation to match the largest employment. Conditions they do not numerically define.. The unemployment rate plummeted from 5.2% in August to 4.2% last month, suggesting that some officials have achieved or are nearing that goal.

Fed officials’ economic forecasts released Wednesday could shed more light on changes in their policy outlook. In September, we evenly divided whether to start raising interest rates in 2022 or 2023. The new forecast expects multiple rate hikes next year.

We also plan to update our economic forecasts as the unemployment rate has fallen and inflation has risen above September’s forecasts.

Some critics are concerned that the Fed’s current pivot reflects potential mistakes made in the past year. They don’t think the new framework is flawed, but they think it was done in a way that unfairly tied the hands of officials.

The two-part test promised to wait longer than before for the Fed to raise interest rates. In other words, interest rates can stimulate economic growth for a year or two after they begin to rise. Misjudging the potential for tight labor markets and increasing price pressures can exacerbate potential problems.

Jason Farman, chair of the Council of Economic Advisers during the Obama administration, said it was time to say what to do if the Fed exceeded its inflation target while it was below its employment target.

In a presentation last month, Powell said, “We couldn’t clarify how the Fed handles situations where different indicators are sending different signals, because that’s likely to happen. It’s essentially a denial. ” “But that’s happening in a big way and needs more clarity.”

While still there 3.9 million fewer people working From February 2020, some of the gap reflects retirees and others who chose not to work for several reasons, including fear of Covid-19, increased household wealth, and lack of childcare. You may be doing it. It is not known how many have left the workforce forever.

“For those who don’t necessarily want a job, we don’t want monetary policy to try to get a job incredibly hard,” Ferman said.

In a recent comment, Powell hinted at the idea that maximum employment can change over time and that central banks can be closer than they thought they were to achieve that goal.

“If they determine that they have reached the maximum employment standard and they determine that they will not be able to do any more, they may immediately raise rates in the spring. [to boost hiring] In the short term, “said English.

Write to Nick Timiraos at nick.timiraos@wsj.com

Copyright © 2021 DowJones & Company, Inc. all rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

The federal government meets for the first time since Powell signaled a policy shift

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