Investing.com - The U.S. Federal Reserve is aiming to review its policy framework to reflect changes in the economic environment since the COVID-19 pandemic and prepare for a potential period of more frequent supply shocks, Fed Chair Jerome Powell has said.
In a speech, Powell said the economy has "changed significantly" since 2020, with longer-term interest rates in particular now "a good deal higher".
An uptick in rates could also be indicative of a possibility that inflation may be "more volatile" going forward than in the 2010s, Powell noted.
"We may be entering a period of more frequent, and potentially more persistent, supply shocks -- a difficult challenge for the economy and for central banks," he said.
Coralling inflation has long been one the central tasks of the Fed, along with calibrating rates to pursue maximum employment.
The Fed adopted its current approach to monetary policy in 2020, when the U.S. was still in the midst of the pandemic. At the time, the central bank pledged to allow for lower unemployment rates and use times of high price growth to offset years of weaker inflation.
Powell’s remarks, which came at the start of a two-day conference in Washington, D.C., did not focus heavily on the Fed’s recent decision to leave borrowing costs unchanged after its latest meeting last week. The central bank previously argued the economy appears to be broadly stable, but flagged that risks from inflation and unemployment are rising.
On Thursday, Powell predicted that the April personal consumption expenditures price index will cool to 2.2%. However, the figures are yet to likely be completely reflective of recent tariff-fueled price pressures.
But Powell still called easing inflation and resilient jobs growth a "welcome" occurrence, adding that it is "historically unusual" after a series of rate hikes to reduce prices. The Fed recently lifted rates by 525 points over 16 months in a bid to tamp down sky-high inflation.