FED CHIEF INCHES TOWARD LOOSENING STANCE ON INFLATION

Chairman Jerome Powell may be on the verge of sending a wholly different message this week: That the Fed plans to leave its key rate pinned near zero even after inflation has surpassed the central bank’s target level — at least for a while, Martin Crutsinger wrote for the Associated Press (AP) late on August 26, 2020.

Behind the Fed’s new thinking is an ailing economy in the grip of a viral pandemic and a stubbornly low inflation rate that has long defied the Fed’s efforts to raise it.

On Thursday, Powell will address the Fed’s annual gathering of global central bankers, normally held in picturesque Jackson Hole, Wyoming, amid the towering Grand Teton mountain range but this time being conducted virtually. The conference is occurring just as the Fed is nearing the end of a comprehensive review of its monetary policy. While its conclusions may not be announced until the Fed holds its next meeting in September, Powell will likely preview its message in his speech Thursday.

The widespread expectation is that the Fed is poised to adopt a more flexible policy that would allow inflation to overshoot its 2% annual target for some period to compensate for the many years in which inflation has run below 2%. It’s called “average inflation targeting.” The goal would be to drive home to borrowers and investors that the Fed’s benchmark rate — which influences many consumer and business loans — will stay ultra-low for likely years to come. What’s new is the message that the Fed is prepared to accept a level of inflation that in the past it would not have tolerated while keeping rates near record lows.