Fed’s Powell: Economy Faces More Volatile Inflation Environment Ahead

Fed Chair Jerome Powell warned that future supply chain and commodity shocks could make inflation more volatile than in the 2010s. At a research conference, he noted that long-term interest rates are now much higher than after the 2007-09 financial crisis, with the current Fed benchmark at 4.25%-4.5%.

As part of its five-year policy review, the Fed is reconsidering its 2019 framework, which allowed inflation to exceed 2% to compensate for previous undershooting—timing that economist Sal Guatieri suggests may have contributed to record inflation. Unlike the previous review that worried about rates hitting zero, this update will incorporate lessons from the 2021 inflation surge to create a framework that works across various economic conditions. Powell also plans to improve how the Fed communicates uncertainty beyond the current “dot plot” system.