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Fed's Powell: Strategy around both jobs and inflation needs to be reconsidered
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Fed's Powell: Strategy around both jobs and inflation needs to be reconsidered
May 26, 2025 8:33 AM

WASHINGTON (Reuters) -U.S. Federal Reserve officials feel they need to reconsider the key elements around both jobs and inflation in their current approach to monetary policy given the inflation experience of the last few years and the possibility that supply shocks and the associated price increases may become more frequent in the years ahead, Fed chair Jerome Powell said Thursday.

"We may be entering a period of more frequent, and potentially more persistent, supply shocks-a difficult challenge for the economy and for central banks," Powell said in opening remarks at a two-day conference reconsidering the Fed's current approach to monetary policy, adopted in 2020 as the economy was still scarred by the pandemic.

"The economic environment has changed significantly since 2020, and our review will reflect our assessment of those changes," Powell said.

Powell did not focus on current monetary policy or the economic outlook, though he did say he expected April personal consumption expenditures price inflation to have fallen to 2.2% -- a tepid reading but still likely not reflecting coming tariff-driven price increases.

Still that reflects a "historically unusual result" of disinflation without major damage to the economy, a "soft landing" that did take place under the Fed's current strategy.

Five years ago the Fed recast its approach to allow more room for lower unemployment rates and pledged to use periods of high inflation to offset years in which inflation was weak, a common occurrence  from 2010 to 2019.

The inflation that took off after that, and the emerging state of the global economy, means that approach may need a rethink, Powell said.

"In our discussions so far, participants have indicated that

they thought it would be appropriate to reconsider the language around shortfalls" of employment, a change adopted so the Fed would not consider a low unemployment rate in itself a sign of inflation risk, Powell said. "At our meeting last week, we had a similar take on average inflation targeting. We will ensure that our new consensus statement is robust to a wide range of economic environments and developments."

His comments point to possibly extensive revisions to a strategy that had been viewed at its inception as a major shift for the Fed, with a willingness to take more risks in favor of a stronger job market and a willingness to tolerate higher inflation after periods of weakness.

But "the idea of an intentional, moderate overshoot proved irrelevant to our policy discussions and has remained so through today" following the near double-digit inflation that occurred during the pandemic reopening, Powell said.

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