Looking forward Looking forward http://www.federatedinvestors.com/mmdt/static/images/mmdt/mmdt-logo-amp.png http://www.federatedinvestors.com/mmdt/daf\images\insights\article\federal-reserves-street-small.jpg September 16 2020 September 16 2020

Looking forward

The Fed sharpens its new policy framework with strong forward guidance. 

Published September 16 2020

On the heels of the announcement of a shift in average inflation targeting at the virtual Jackson Hole conference a few weeks back, the Federal Reserve wasted no time putting that change to work through enhanced forward guidance today. I was a little surprised that the policymakers moved so quickly in this direction in the Federal Open Market Committee (FOMC) meeting, thinking they might keep that incremental bit of accommodation to themselves until Congress showed signs of stepping up with fiscal support. Be that as it may, the FOMC statement asserted it will “aim to achieve inflation moderately above 2% for some time.” The idea, again, is that this approach will eventually lead to inflation (and inflation expectations) “well anchored at 2%.” Officials will maintain an accommodative stance until employment conditions recover not just to a level consistent with maximum employment, but one that induces, or at least accompanies, a move in inflation above 2%.

The Summary of Economic Projections and accompanying "dot plot" reflected this commitment. Officials projected core PCE inflation to reach 2% and the unemployment rate to fall to 4% in 2023. While median projection for the fed funds target range remained at 0-0.25%, four committee participants expressed that rates could be higher by then. Chair Jerome Powell noted that the economy had recovered more quickly than expected, reflected in the revison of the FOMC’s June forecast of a 6.5% decline in 2020 GDP to a decline of 3.7%. Two participants, Robert Kaplan and Neel Kashkari, dissented from the statement. 

Tags Monetary Policy . Interest Rates . Liquidity . Markets/Economy .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Gross Domestic Product (GDP) is a broad measure of the economy that measures the retail value of goods and services produced in a country.

Personal Consumption Expenditure (PCE) Index: A measure of inflation at the consumer level.

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