MNI BRIEF: Fed Framework Review To Revisit FAIT, 'Shortfalls'

The Federal Reserve will reexamine its policymaking framework's focus on near-zero interest rates and recharacterize how it seeks to mitigate "shortfalls" from maximum employment, Fed Chair Jerome Powell said Friday, also noting a look at changes to "post-meeting communications."

Changes to the framework made in 2020 were "very focused on the effective lower bound problem. We thought those changes would be persistent but the universe had other ideas," Powell told a Chicago Booth conference in New York.

"The idea of a modest overshoot really became irrelevant and we went back to the regular framework," he said. The risk of rates being stuck at the effective lower bound is "probably not the base case anymore but still relevant," he said. Reacting to "shortfalls" from maximum employment is "an interesting idea but there are different ways to express that," he said.

The FOMC "seeks over time to mitigate shortfalls of employment from the Committee’s assessment of its maximum level and deviations of inflation from its longer-run goal," according to the current framework document.

The FOMC will also look at potential changes to its post-meeting statement and summary of economic projections, and compare its communications to those of other central banks, Powell said. (See: MNI: Fed To Examine If Framework Robust To Any Scenario)