Fed’s Latest Strategy Shift to Not Impact Economy Much

A majority of economists polled by Reuters are of the opinion that the Fed’s most recent shift in strategy towards average inflation and boosting employment is unlikely to have any significant impact on the US economy. They also indicate in the poll that it would take at least until 2023 for the US central bank to meet its latest two-pronged goal.

At its latest Jackson Hole symposium a few weeks ago, Fed chairman Jerome Powell had announced that the central bank would shift its focus towards maximising employment levels in the country by allowing inflation to rise above its 2% target occassionally and aim for an average inflation of around 2% instead. He also hinted that interest rates could continue at the current levels close to zero for a longer period of time.

Economists forecast that the core PCE price index, which is closely monitored by the Fed as a measure of inflation levels in the country, could average around 1.3% in 2020. The figure could rise to 1.5% in 2021 and to 1.7% by 2022 – still below the 2% target of the Fed.

The unemployment level in the US is forecast to average around 8.6% for 2020 and fall to 7.3% and 5.6% by 2021 and 2022 respectively. The unemployment level is likely to remain higher than the pre-pandemic period when it stood at 3.5%.

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