The Fed will average inflation, rather than use a hard target, Powell says
Read the original article by Kathleen Howley on HousingWire
Federal Reserve Chairman Jerome Powell on Thursday announced a major shift in monetary policy that will allow the central bank to use inflation averaging, rather than the current practice of setting a hard target.
Speaking at a video-only version of the Federal Reserve Bank of Kansas City’s annual conference, Powell said the Fed will no longer raise its benchmark rate to keep unemployment from falling too low and will allow inflation to run slightly higher than the current 2% target after periods of economic weakness.
Both of those moves might be good for workers looking for pay raises, said Dean Baker, senior economist at the Center for Economic and Policy Research. The downside is: Higher inflation would put upward pressure on mortgage rates.
“I know no one wants to pay higher mortgage rates, but if their wages are rising faster as a result of today’s change in Fed policy, it ends up being a wash,” Baker said in an interview…