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Front of the U.S. federal Reserve building
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Fed Change Shows Long-Term Commitment to Low Interest Rates

The Federal Reserve often raises interest rates to keep inflation below 2%, but now says it will ignore inflation and keep rates low even if the percentage moves higher.

NEW YORK – The Federal Reserve is preparing to effectively abandon its strategy of pre-emptively lifting interest rates to head off higher inflation – a practice it has followed for more than three decades.

Instead, Fed officials say they’ll take a more relaxed view. Going forward, they’ll allow inflation to run higher than 2% at times to make up for past episodes when inflation ran below the 2% target.

In making the announcement, the Fed is essentially telling markets that it won’t raise interest rates for a long time.

While rate-watchers already understood the Fed’s stance, a change in interest-rate policy shows that the Fed is serious about keeping rates low for the long term, says Steven Blitz, chief U.S. economist at research firm TS Lombard. “It is a change at this point without meaning. It’s just words.”

Source: Wall Street Journal (08/02/20) Timiraos, Nick

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