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Brookings Podcast on Economic Activity
How will the Federal Reserve revise its monetary policy framework in 2025?
Dec 18, 2024
Christina Romer, Former Chair of the President's Council of Economic Advisors, and Brian Sack, Former Executive VP of the Federal Reserve Bank of New York, discuss the Federal Reserve's upcoming 2025 review of its monetary policy framework. They explore how the challenges of the past few years, such as COVID-19 and supply chain issues, have impacted policy effectiveness. The conversation highlights the need for adaptable strategies, critiques previous inflation responses, and suggests improvements in communication and implementation for future monetary policy.
33:22
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Quick takeaways
- The Federal Reserve's revision of its monetary policy framework in 2025 seeks to enhance responsiveness to inflation amidst changing economic conditions.
- Experts advocate for a more adaptable policy approach that balances maximum employment and healthy economic growth without overheating the labor market.
Deep dives
Key Changes to the Federal Reserve's Framework
The Federal Reserve's monetary policy framework, adopted in August 2020, introduced significant changes, including flexible average inflation targeting. This approach aimed to balance periods of low inflation by allowing inflation to surpass the target after extended periods of being below it. Additionally, the Fed emphasized maximum employment but redefined it to favor a 'hot labor market,' which led to a slower response to rising inflation. These shifts arguably contributed to the Fed's delayed reaction to inflation that began increasing after the COVID-19 pandemic.
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