Fed plans to leverage policies to address inflation, guide it toward targeted levels

(MENAFN) To address inflation and guide it toward targeted levels, the US Federal Reserve plans to leverage its available tools, as articulated by its Chair, Jerome Powell, during his remarks at the National Association for Business Economics Annual Meeting in Tennessee. He noted that if economic conditions unfold as anticipated, the Fed's policy will gradually transition to a more neutral stance over time. Powell emphasized the importance of remaining flexible, stating, "The risks are two-sided, and we will continue to make our decisions meeting by meeting," indicating a careful assessment of incoming data and the evolving economic outlook as they contemplate further policy adjustments.

Powell expressed confidence in the overall strength of the US economy, highlighting the substantial progress made over the past two years in achieving the dual mandates of maximum employment and stable prices. He acknowledged that while labor market conditions remain robust, they have cooled from a previously overheated state, and inflation appears to be on a sustainable path toward the Fed's 2 percent target. This reflects the Fed's commitment to balancing economic growth with inflation control, aiming for a stable financial environment.

In a strategic move, the Fed recently reduced the level of policy restraint by lowering the target range of the federal funds rate by 0.5 percentage points. Powell explained that this decision stems from growing confidence that with an appropriate recalibration of the policy stance, the strength of the labor market can be preserved in an atmosphere of moderate economic growth and declining inflation. Since July 2023, when the Fed's policy rate reached a two-decade high amidst core inflation exceeding 4 percent and unemployment sitting at a near 50-year low of 3.5 percent, significant shifts have occurred in both metrics.

Over the subsequent 14 months, Powell noted a considerable decrease in inflation and a rise in unemployment, indicating a need for a policy recalibration to align with progress toward the Fed's goals. He asserted, "It was time for a recalibration of our policy stance to reflect progress toward our goals as well as the changed balance of risks," reinforcing the Fed's commitment to adapting its approach based on the dynamic economic landscape while remaining focused on its long-term objectives.

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