Chair, Federal Reserve of the United States
'What Are The Implications For Monetary Policy?': Jerome Powell Lays Out Key Considerations For Fed
Federal Reserve Chair Jerome Powell spoke about the Fed's dual-mandate and uring remarks in Jackson Hole, Wyoming, on Friday.
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About Jerome Powell
Jerome Powell, the former chair of the U.S. Federal Reserve, received the 2026 John F. Kennedy Profile in Courage Award in May 2026 at a ceremony in Boston. In his acceptance speech, Powell said the Federal Reserve had been undergoing a "stress test," and warned against political interference in monetary policy. He stated that the Fed makes its decisions based on economic analysis and does not "take into account the fortunes of any political party or politician in making those decisions." Powell argued that legal protections insulating the Fed from political pressure have served the public well, and said that "if any administration finds a way to remove Fed officials over policy differences, then future administrations will do so as well," adding that the Fed's credibility would be lost. Powell’s eight-year term as Fed chair ended on May 15, 2026. He announced during an April FOMC press conference that he would remain on the Board of Governors for an unspecified period, saying his decision was driven by concerns over "legal attacks on the Fed" by the administration. He stated he planned to keep "a low profile" and that Kevin Warsh, once confirmed and sworn in, would be the new chair. In his last FOMC press conference, the committee held interest rates steady, noting that inflation was elevated in part due to rising global energy prices and citing a high level of uncertainty in the economic outlook.
Transcript (14 segments)
✨ AI-enhanced transcript with speaker attribution
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Jerome Powell0:00
So putting the pieces together, what are the implications for monetary policy? In the near term, risks to inflation are tilted to the upside and risks to employment to the downside. A challenging situation when our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate. Our policy rate is now 100 basis points closer to neutral than it was a year ago, and the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance.
Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance. Monetary policy is not on a preset course. FOMC members will make these decisions based solely on their assessment of the data and its implications for the economic outlook and the balance of risks. We will never deviate from that approach.
So turning then to my second topic, our monetary policy framework is built on the unchanging foundation of our mandate from Congress to foster maximum employment and stable prices for the American people. We remain fully committed to fulfilling our statutory mandate, and the revisions to our framework work will support that mission across a broad range of economic conditions.
Our revised statement on longer-run goals and monetary policy strategy, which we refer to as our consensus statement to save time, describes how we pursue our dual mandate goals. It is designed to give the public a clear sense of how we think about monetary policy, and that understanding is important both for transparency and accountability and for making monetary policy more effective.
The changes we made in this review are a natural progression grounded in our ever-evolving understanding of our economy. We continue to build upon the initial consensus statement adopted in 2012 under Chairman Ben Bernanke's leadership. Today's revised statement is the outcome of the second public review of our framework, which we conduct at five-year intervals.
This year's review included three elements: Fed Listens events at reserve banks around the country, a flagship research conference, and policymaker discussions and deliberations supported by staff analysis at a series of FOMC meetings.
In approaching this year's review, a key objective has been to make sure that our framework is suitable across a broad range of economic conditions. At the same time, the framework needs to evolve with changes in the structure of the economy and our understanding of those changes. The Great Depression presented different challenges from those of the Great Inflation and the Great Moderation, which in turn are different from the ones we face today.
At the time of the last review, we were living in a new normal characterized by the proximity of interest rates to the effective lower bound, or ELB, along with low growth, low inflation, and a very flat Phillips curve, meaning that inflation was not very responsive to slack in the economy. To me, a statistic that captures that era is that our policy rate was stuck at the ELB for seven long years following the onset of the global financial crisis in late 2008.
Many here will recall the sluggish growth and painfully slow recovery of that era. It appeared highly likely that if the economy experienced even a mild downturn, our policy rate would be back at the ELB very quickly, probably for another extended period. Inflation and inflation expectations could then decline in a weak economy, raising real interest rates as nominal rates were pinned near zero. Higher real rates would further weigh on job growth and reinforce the downward pressure on inflation and inflation expectations, triggering an adverse dynamic.
The economic conditions that brought the policy rate to the ELB and drove the 2020 framework changes were thought to be rooted in slow-moving global factors that would persist for an extended period, and they might well have done so if not for the pandemic.
The 2020 consensus statement included several features that addressed the ELB-related risks that had become increasingly prominent over the preceding two decades. We emphasized the importance of anchored longer-term inflation expectations to support both our price stability and maximum employment goals. Drawing on an extensive literature on strategies to mitigate risks associated with the ELB, we adopted flexible average inflation targeting, a makeup strategy to ensure that inflation expectations would remain well anchored even with the ELB constraint.
In particular, we said that following periods when inflation had been running persistently above 2%, appropriate monetary policy would likely aim to achieve inflation moderately above 2% for some time. In the event, rather than low inflation and the ELB, the post-pandemic reopening brought the highest inflation in 40 years to economies around the world.
Like most other central banks and private sector analysts through year-end 2021, we thought that inflation would subside fairly quickly without a sharp tightening in our policy stance, as this slide will show. When it became clear this was not the case, we responded forcefully, raising our policy rate by five and a quarter percentage points over 16 months.
That action, combined with the unwinding of pandemic supply disruptions, contributed to inflation moving much closer to our target without the painful rise in unemployment that has accompanied previous efforts to counter high inflation.