During his keynote address, Chairman Powell delivered a powerful message. In that message there were major changes in the current monetary policy of the Federal Reserve. The biggest change in his monetary policy was his realization of target inflation that was acceptable. Over the years the Fed has maintained a dual mandate that limits maximum employment, and 2% inflation.
In 2010, when the Federal Reserve first introduced quantitative easing in which they flooded the economy with liquidity, they carefully monitored inflation levels. As inflation began to approach their target of 2%, they raised their Fed Funds rate. It controls interest rates as a method to slow economic growth and therefore slows down inflationary pressures.
The increase in rates actually slowed the economy, but had a detrimental effect on overall growth, and many analysts felt that the Fed acted faster thus extending the timeline for economic recovery.
The Federal Reserve seems to have learned from this action that raising rates quickly does not serve their dual mandate. Especially their goal of reaching maximum employment and a stable economy. News announced during the seminar last month dramatically changed the time that the Federal Reserve would raise rates.
However, during the keynote speech, Chairman Powell made extensive comprehensive statements that lacked an accurate description of how they would implement the scheme, and most importantly the parameters and levels at which they believed it would start raising rates. Will give.
It is precisely for this reason that yesterday’s statement and the following press conference are so important. For the first time since December of last year, the Federal Reserve will release its ‘dot plot’, which reflects the original intent and timeline that members of the Federal Reserve believe will be necessary to maintain interest rates at current levels that are zero is near. Although each point represents a voting member, there is no information about which member has voted. However, the release of “Dot Plot” tomorrow will bring some clarity as to the absolutely anticipated timeline.
Analysts predict that we may keep interest rates close to zero by 2023. In fact, Bloomberg selected 31 economists and came to the following conclusions; Economists said in a Bloomberg poll, ‘The Federal Reserve can hold interest rates near zero for three or more years and its balance sheet will exceed $ 10 trillion as policymakers seek to revive the US economy. More than half of 31 respondents in the April 20–23 poll predicted the target range for the federal funds rate, now at 0–0.25%, would not rise until at least 2023. Another 20% said before 2022. ”
While the uncertainty of what will happen in real time remains, we know that it will be based on hard data and will revive economic growth, or adjust as contracts. It is being said that the Federal Reserve continues its commitment to do whatever it takes to revive the economy and move towards maximum employment. The biggest change in their mandate is the desire to heat inflation a bit earlier than before so that they can put Americans back to work and emphasize economic growth.
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