Fed Plans Major Review of How it Pursues Inflation, Employment Goals

Fed Plans Major Review of How it Pursues Inflation, Employment Goals

The U.S. central bank said on Thursday it will hold a series of forums across the country to hear from a "wide range" of stakeholders on how to improve its policy approach.

While largely optimistic about a continued strong performance of the USA economy, Federal Reserve Chairman Jerome Powell has cautioned that potential headwinds are on the way and said that the central bank has to think about the pace of raising interest rates.

The Federal Reserve in 2019 will launch a broad look at how it conducts policy and conveys what is doing to the public. "There's pretty good reason to think we're going to continue in a positive vein like that", Powell said, adding that the Fed deserved credit for its role in the long and steady expansion. The campaign, though, has attracted the ire of US President Donald Trump, who has attacked the Fed for raising rates.

Powell said that is not the Fed's aim. Policymakers then plan to discuss the perspectives gained and report their findings.

During and after the financial crisis, the Fed lowered its benchmark rate to near-zero and initiated a series of asset purchases aimed at helping the financial markets and providing a wealth effect. It also began publishing individual policymakers' anonymous forecasts for future rate hikes and key economic metrics.

"We have to be thinking about how much further to raise rates, and the pace at which we will raise rates", Mr Powell said during a question-and-answer session on Wednesday in Dallas moderated by Dallas Fed chief Robert Kaplan. But the Fed's inflation mandate, which it interprets to be 2-percent, and its other mandate to achieve maximum sustainable employment will likely be put under the microscope by not just economists and investors but also workers, employers and civic leaders. Last week, the Fed left rates unchanged at the conclusion of the two-day meeting, but noted that the central bank remained on track to gradually raise interest rates.

Labor-allied groups have lobbied the Fed to use inflation as a tool to boost wages, for example, and could see the review as an opening to make their case. The US central bank's rate increases are starting to bind on some segments of the economy, such as housing, and financial conditions are tightening. The review suggests the Fed is taking advantage of calm waters to decide what may work best in the next downturn.

Options include rising the inflation target, choosing a range rather than a narrow target, or targeting nominal GDP instead.

"None of these alternative frameworks are without challenges, but all are worth thorough review", Cleveland Fed President Loretta Mester said in an October speech in NY.

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