Federal Reserve Chair Jerome Powell said Thursday that the central bank is rethinking its approach to inflation and employment, signaling possible changes to the Fed’s policy strategy as part of a major review underway in 2025.
“Participants have indicated that they thought it would be appropriate to reconsider the language around [labor market] shortfalls,” Powell said, referring to how the Fed talks about employment in its official strategy.
Powell also highlighted that “at our meeting last week, we had a similar take on average inflation targeting,” hinting that the policy introduced in 2020 may be revised or dropped.
What’s Changing And Why?
In 2020, the Fed adopted a strategy to let inflation run slightly above 2% after years of staying too low. That policy, known as average inflation targeting, was meant to boost job growth and better support the economy in downturns.
But just months later, inflation surged far beyond the Fed’s expectations, hitting a peak of 7.2% in 2022. The Fed had to respond aggressively, raising interest rates by 5.25 percentage points in just 16 months. Now, Powell says the economic landscape has changed and the old approach may no longer fit.
In April 2025, inflation measured …