The Federal Reserve Changes its Interest Rate Policy

Marty McCarthy, CPA, CCIFP
Focused on You. Dedicated to Your Success.
September 14, 2020

Jerome H. Powell, the chair of the Federal Reserve, announced a major shift in how the central bank guides the economy. It will make job growth pre-eminent and will not raise interest rates just because the unemployment rate is low.

In emphasizing the importance of a strong labor market and saying the Fed will tolerate slightly faster price gains, Chairman Powell laid the groundwork for years of low interest rates. 

In a move that Chairman Powell called a “robust updating” of Fed policy, the central bank formally agreed to a policy of “average inflation targeting.” That means it will allow inflation to run “moderately” above the Fed’s 2% goal “for some time” following periods when it has run below that objective.

The changes were outlined in a policy blueprint called the “Statement on Longer-Run Goals and Monetary Policy Strategy.” This policy was first adopted in 2012 and has guided the Fed’s approach to interest rates and general economic growth. The announced changes are a result of a year-and-a-half long review of the central bank’s monetary policy strategy. 

“Our revised statement emphasizes that maximum employment is a broad-based and inclusive goal,” added Chairman Powell. “This change reflects our appreciation for the benefits of a strong labor market, particularly for many in low- and moderate-income communities.”

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Feel free to contact any member of our team at (610) 828-1900 (PA) or (732) 341-3893 (NJ) with questions. Rich Higgins, CPA, managing principal – New Jersey office can be contacted at Richard.Higgins@MCC-CPAs.com. I can be reached at Marty.McCarthy@MCC-CPAs.comAs always, we are happy to help.

Stay safe,

Marty McCarthy, CPA, CCIFP
Managing Partner
McCarthy & Company

Source: Fed Chair Sets Stage for Longer Periods of Lower Rates. Jeanna Smialek. The New York Times. August 27, 2020.

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