The Federal Reserve announced in November 2018 that it would conduct a broad review of the strategy, tools, and communication practices it uses to pursue the monetary policy goals established by the Congress: maximum employment and price stability.
The Federal Reserve's existing policy framework is the result of decades of learning and refinement and has allowed it to effectively pursue these two goals for policy, known as the dual mandate. With both employment and inflation near the Federal Reserve's objectives, now is a good time to step back and consider whether the U.S. monetary policy framework can be improved to better meet future challenges.
The U.S. economy appears to have changed in ways that matter for the conduct of monetary policy, particularly during economic downturns. For example, the neutral level of the policy interest rate, the level that keeps the economy on an even keel when employment and inflation are close to their objectives, appears to have fallen in the United States and abroad. This decline increases the risk that a central bank's policy rate will fall to its effective lower bound, constraining the central bank's ability to counter future downturns.
The review will take the Federal Reserve's statutory mandate as given, and will also take as given that an inflation objective of 2 percent is the most consistent, over the longer run, with the assigned mandate of price stability. Within these parameters, the review will be wide-ranging. It will consider whether the Federal Reserve can best meet its dual-mandate objectives with its existing monetary policy strategy, whether the existing monetary policy tools are adequate to achieve and maintain the dual mandate, and whether the communications about the policy strategy and tools can be improved.
The review will include outreach to and consultation with a broad range of people and groups interested in the U.S. economy. The Reserve Banks will hold a series of Fed Listens events around the country, with a town hall format, to hear perspectives from representatives of business and industry, labor leaders, community and economic development officials, academics, nonprofit organization executives, and others. In addition, the Federal Reserve System will sponsor a research conference on June 4-5, 2019, at the Federal Reserve Bank of Chicago, with academic and non-academic speakers from outside the Federal Reserve System.
Beginning around the middle of 2019, the Federal Open Market Committee, as part of its review of how to best pursue the dual mandate, will discuss economic research as well as the perspectives offered during the Fed Listens events. Policymakers plan to report their findings to the public during the first half of 2020.
- Speech by Chair Jerome Powell, "Monetary Policy: Normalization and the Road Ahead"
- Speech by Vice Chair Richard Clarida, "The Federal Reserve's Review of its Monetary Policy Strategy, Tools, and Communication Practices"
- Federal Reserve to review strategies, tools, and communication practices it uses to pursue its mandate of maximum employment and price stability
- Statement on Longer-Run Goals and Monetary Policy Strategy (PDF)
- Federal Reserve Transparency: Rationale and New Initiatives