2019-2020 Review: Overview
In 2019, the Federal Reserve launched its first-ever comprehensive and public review of the monetary policy framework—the strategy, tools, and communication practices—it employs to achieve its congressionally mandated goals of maximum employment and price stability. At the time the Fed announced its review, employment and inflation were near the Fed's objectives, making it a good time to step back and consider whether the U.S. monetary policy framework could be improved to better meet future challenges.
Moreover, good institutional practice suggests that routine self-evaluation is healthy for any organization. For the Fed, however, a fresh look had become particularly important because changes in the economic environment suggested that revisions to the existing framework could be helpful to policymakers in addressing future challenges. In particular, the neutral level of the federal funds rate (the Fed's 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 the policy rate will fall to its effective lower bound near zero, thus constraining the ability to support the economy through reductions in the federal funds rate and, consequently, increasing risks that employment and inflation will fall below levels consistent with the dual mandate goals.
The review took the Federal Reserve's statutory mandate as given as well as the FOMC's previously articulated longer-run inflation objective of 2 percent. The review process featured three key components:
- A Fed Listens initiative provided outreach to and consultation with a broad range of people and groups across the country. In 14 events in 2019 and a follow-up event in 2020 in the midst of the COVID-19 pandemic, the Board and Reserve Banks engaged with and heard from groups representing low-income and minority residents, workforce development organizations and community colleges, labor unions, small businesses, retirees, and others. These dialogues provided important feedback about the effects of the Fed's policies on communities across the United States.
- A flagship research conference hosted by the Federal Reserve Bank of Chicago brought policymakers together with world-class academics and researchers to hear about research central to the framework review.
- Finally, the FOMC discussed topics associated with the review at five consecutive meetings beginning in July 2019. This discussion was informed by analytical work by research staff across the Federal Reserve System and was reported in the minutes of those five meetings.
On August 27, 2020, the FOMC released a revised Statement on Longer-Run Goals and Monetary Policy Strategy. This document lays out the goals for monetary policy, articulates the policy framework, and serves as the foundation for the Committee's policy actions. This revised consensus statement is one of the key products of the review. The revised statement indicates that the FOMC intends to conduct a regular review of its monetary policy strategy, tools, and communication practices roughly every five years.
- Federal Open Market Committee (FOMC) announces approval of updates to its Statement on Longer-Run Goals and Monetary Policy Strategy (August 27, 2020)
- Federal Reserve to review strategies, tools, and communication practices it uses to pursue its mandate of maximum employment and price stability (November 15, 2018)
- Statement on Longer-Run Goals and Monetary Policy Strategy (PDF)
- Federal Reserve Transparency: Rationale and New Initiatives