Fed unveils major policy shift to maximise US job growth

The new policy makes it clear the central bank will allow inflation to stay above its 2.0 per cent target ‘for some time’ before officials will need to take action by raising interest rates

The US central bank rolled out a major policy change on Thursday that gives greater weight to its mission of maximising employment to benefit lower income families, while ratcheting back its emphasis on fighting inflation.

Federal Reserve Chair Jerome Powell said the aim is to correct the “shortfalls” in achieving the Fed’s goal of maximum employment and to recognize that, with changes in the global economy, a tight job market does not necessarily drive prices higher.

In practice, the change will keep borrowing rates low for much longer than in prior economic expansions -- something President Donald Trump has loudly demanded, though for more political reasons.

“This change reflects our appreciation for the benefits of a strong labour market, particularly for many in low- and moderate-income communities,” Powell said in a speech unveiling the policy.

The new policy makes it clear the central bank will allow inflation to stay above its 2.0 per cent target “for some time” before officials will need to take action by raising interest rates.

The policy shit, though telegraphed in recent statements, is a significant change for the Fed and central banking in general, as inflation for decades has been the economic villain to be stamped out at every turn. It also represented a defeat for inflation hawks, though the change was approved unanimously.