Long-term interest rates are now notably higher, driven mainly by increased real rates rather than shifts in inflation expectations, while estimates of the longer-run neutral policy rate have also risen, Fed Chair Jerome Powell said on Thursday.
Speaking about the Fed's ongoing review of its policy framework, last updated in 2020, Powell said the economy has changed a lot since then. He warned that inflation might become more volatile in the future due to more frequent supply shocks, which could make it harder for central banks to achieve price stability.
Throughout his remarks, Powell also stressed the critical role of anchored inflation expectations, which have underpinned several of the longest U.S. economic expansions.
He reaffirmed the Fed's strong commitment to its 2% inflation target, noting that without well-anchored expectations, the recent disinflation would likely have come at the cost of significant job losses.
Source: Trading Economics
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