On May 15, the Financial Association reported (Editor: Shi Zhengcheng) that on Thursday evening Beijing time, Federal Reserve Chairman Powell delivered a speech at the Washington headquarters, previewing potential adjustments to the Federal Reserve's monetary policy framework.

As background, the Federal Reserve is conducting its first review of the monetary policy framework since 2020, aiming to incorporate lessons from the inflation surge in 2021 and the subsequent sharp interest rate hikes. The previous policy framework was also seen as one of the reasons for the Federal Reserve's 'slow actions' that year.

As part of the consultation process, the Federal Reserve Board will host the 'Second Thomas Laubach Research Conference' this Thursday to Friday, inviting external experts and scholars to engage with officials. The Federal Reserve expects to complete the policy assessment by the end of summer this year, with a potential release period possibly coinciding with the Jackson Hole Annual Conference at the end of August.

Powell: A consensus statement will be revised.

In his speech, Powell stated that in 2012, the FOMC, led by Bernanke, first codified the Federal Reserve's monetary policy framework in a document titled 'Statement on Longer-Run Goals and Monetary Policy Strategy,' also referred to as the 'consensus statement.' From 2012 to 2018, the FOMC voted every January to reaffirm the consensus statement. In 2019, the Federal Reserve decided to conduct a public evaluation of it every five years.

Powell, who led the last policy evaluation, also stated that during the 2020 assessment, policymakers faced nearly 10 years of low interest rates, low growth, low inflation, and a very flat Phillips curve. Therefore, the core consideration in using the current Federal Reserve monetary policy framework has been to address the persistent failure to meet the inflation target.

At that time, the Federal Reserve also decided that future policy decisions should be based on an assessment of the "gap below maximum employment" rather than "deviations."

The implication is that the Federal Reserve is more concerned about the problem of insufficient employment, making the threshold for early intervention against "overheating employment causing inflation" higher. Thus, officials made a small but important shift at that time: keeping interest rates slightly below the levels suggested by most models and allowing the inflation rate to moderately exceed the target.

Under this policy framework, the Federal Reserve continued to determine that inflation might quickly decline in 2022 until the end of 2021, so it only needed to moderately raise the policy interest rate—but the reality was far from that.

Powell emphasized that the economic environment has changed significantly since 2020, and the latest assessment will reflect the judgment of these changes. He also stated that with the rise of real interest rates, future inflation volatility may be higher than in the 2010s, and globally, we are entering a period of "more frequent supply shocks, and potentially stronger persistence."

The Federal Reserve Chairman stated that in the discussions so far, attendees generally believe it is necessary to review the wording related to the employment "gap" in the policy. Meanwhile, during last week's policy meeting, officials also agreed to revise the so-called "average inflation target." He also clearly stated that stable expectations are the cornerstone of all policies, and today, the Federal Reserve remains firmly committed to achieving a 2% inflation target.

In addition to revising the consensus statement, the Federal Reserve will also consider possible improvements to the formal communication of policies, particularly in areas such as forecasting and uncertainty.