Jerome Powell: Fed Abandons Old Tools and Adjusts Course — Jackson Hole, August 22, 2025

Current Economic Situation

• The U.S. economy remains resilient despite changes in economic policy.
• The labor market is near maximum employment, and inflation has declined from pandemic-era peaks but remains above the target level.
• Emerging challenges include high tariffs, tighter immigration policies, and changes in tax, budget, and regulatory frameworks. These factors affect supply and demand and create uncertainty for Federal Reserve (Fed) policy.

Monetary Policy and Outlook

• The Fed’s policy remains data-driven and flexible.
• The federal funds rate is near neutral, with future decisions depending on inflation and labor market conditions.
• Currently, inflation risks are higher while employment risks are lower, so balancing the goals of maximum employment and price stability remains key.

Fed Strategy Update

A revised “Statement on Longer-Run Goals and Monetary Policy Strategy” has been released.

Key changes include:

• Removing the reliance on the Effective Lower Bound (ELB) of the federal funds rate as a key factor.
• Eliminating the “makeup strategy” (deliberate overshooting of inflation).
• Emphasizing the need to keep long-term inflation expectations anchored at 2 %.
• Defining maximum employment as the highest level sustainable without triggering price instability.

Fed Approach and Long-Term Principles

• Fed policy is not predetermined; decisions are made based on current data and a balanced assessment of risks.
• The practice of publicly reviewing the strategy every five years is reaffirmed, allowing structural economic changes to be incorporated and ensuring transparency and accountability.
• The focus remains on long-term price stability and a strong labor market, with the flexibility to adjust policy as economic conditions evolve.

Sourch: Official website of the Federal Reserve