Catenaa, Thursday, May 15, 2025- US Federal Reserve Chair Jerome Powell said on Thursday that the US may be entering a period of more frequent supply shocks and volatile inflation, with economic uncertainty.
“A critical question is how to foster a broader understanding of the uncertainty that the economy generally faces,” Powell said in his speech in Washington, D.C., predicting that “we may be entering a period of more frequent, and potentially more persistent, supply shocks.”
That, he said, will be a “difficult challenge for the economy and for central banks.”
He said higher interest rates adjusted for inflation may reflect the possibility that inflation could be more volatile going forward than in the intercrisis period of the 2010s.
“In periods with larger, more frequent, or more disparate shocks, effective communication requires that we convey the uncertainty that surrounds our understanding of the economy and the outlook. We will examine ways to improve along that dimension as we move forward,” he added.
Powell said that while the Fed’s benchmark policy rate is currently well above zero, currently in the range of 4.25% to 4.5%, in recent decades, the Fed has cut the rate by about 500 basis points when the economy is in a recession
He added that the Fed remains fully committed to the 2% inflation target.
He noted that the committee is engaged in discussions about what we have learned from the experience of the past five years.
“We plan to complete consideration of specific changes to the consensus statement in the coming months. We are paying particular attention to the 2020 changes as we consider discrete but important updates reflecting what we have learned about the economy, and the way those changes were interpreted by the public,” he said
Discussions so far have revealed to the Fed that it would be appropriate to reconsider the language around shortfalls.
