Powell of the Fed warns against higher long -term rates, as “supply shocks” present political challenges

The president of the federal reserve, Jerome Powell, said Thursday that longer interest rates are likely to be higher as the economy changes and that the policy is evolving.

In the remarks that have focused on examining the Central Bank policy, for the last time in the summer of 2020, Powell noted that the conditions have changed considerably in the past five years.

During the period, the Fed witnessed an increasing inflation period, pushing it to increases in historically aggressive interest rate. Powell said that even with long-term inflation expectations in accordance with the 2% target of the Fed, the quasi-zero rate era will not be likely to come soon.

“Higher real rates can also reflect the possibility that inflation can be more volatile in the future than in the period between the crises of the 2010s,” Powell told the research conference of Thomas Laubach in Washington, DC, “we can enter a more frequent and potentially more persistent banks, supply shocks – a difficult challenge for the economy – power plants “.

The Fed held its reference loan rate almost zero for seven years after the financial crisis in 2008. Since December 2024, the day after day is 4.25%to 4.5%, negotiating more recently at 4.33%.

The remarks of “supply shocks” are similar to those that Powell has pronounced in recent weeks, warning that policy changes could put the Fed in a difficult balance between employment support and inflation control.

Although he did not mention President Donald Trump’s prices during his remarks on Thursday, the head of the central bank in recent days has noted the probability that prices slow down growth and stimulate inflation. However, the magnitude of one or the other impact is difficult to assess, especially since Trump recently fell the most aggressive tasks while waiting for a 90 -day negotiation window.

Nevertheless, the Fed hesitated to facilitate policy after having reduced its reference rate from a full point from last year.

Regarding the examination of the current framework, the Fed will sow to develop a five -year plan for the way it will guide the decisions and the way in which the movements will be relayed to the public.

Powell said the process this time will examine a number of factors.

They include how the Fed communicates its expectations for the future, while involving a backwards on the means of adjusting the last review.

During the tumult of the summer of 2020, the Fed announced an “target flexible inflation target” approach which would allow inflation to operate a little warmer than normal in the interest of providing a complete and inclusive job. However, the targeting of inflation quickly became a dead problem because the prices soar as a result of the cocvid pandemic, forcing the Fed in a series of historically aggressive rate increases.

The current examination will examine how the Fed considers “deficits” in its inflation and employment objectives.

Powell and his colleagues initially rejected the inflation of 2021 as “transient” due to specific factors to the pandemic. However, several Fed officials said that the adoption of the 2020 executive had not taken into account their decision to hold rates almost zero while inflation increased.

“In our discussions so far, participants have said they thought it would be appropriate to reconsider the language around deficits,” he said. “And during our meeting last week, we had a similar socket on the average targeting of inflation. We will make sure that our new declaration of consensus is robust for a wide range of economic environments and developments.”

Addressing the idea of ​​potential tenders and their impact on politics more, Powell said that the exam will focus on communication.

“While academics and market players have generally considered communications (Fed) as effective, there is always room for improvement,” he said. “In periods with larger, more frequent or more disparate shocks, effective communication requires that we transmit the uncertainty that surrounds our understanding of the economy and perspectives. We will examine the means to improve along this dimension as we advance.”

Powell did not give a specific date at the end of the exam, saying only that he expects it in “the coming months”. For the latest review, Powell used his annual comments to the Fed Jackson Hole, Wyoming Retreat to describe politics.