Fed’s Latest Shift Still Consistent With Policy Framework

In this Q&A, we discuss how officials’ indications that interest rates may rise sooner than previously anticipated illustrate the Federal Reserve’s more adaptive response to inflation expectations.

At its June 2021 meeting, the Federal Open Market Committee (FOMC) indicated it was discussing options for tapering bond purchases and revised higher its forecast for the path of interest rates. Since then, many investors have been raising questions about the Federal Reserve’s commitment to the new monetary policy framework it introduced in August 2020, which included allowing inflation to overshoot target levels at times.

We believe FOMC participants’ views are still consistent with the August framework. Indeed, the recent increase in longer-term inflation expectations implies less need for above-target inflation in 2023 and beyond.

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Tiffany Wilding

North American Economist

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CMR2021-0630- 1706198

Fed Policy Amid Elevated Inflation Concerns
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