Key points summarizing the changes in the Federal Reserve's long-term policy framework.

On August 22, the Federal Reserve released the results of its five-yearly review of its monetary policy framework. This framework is a strategic document designed to guide its monetary policy decisions. 1. Policymakers clarified a shift in 2020, stating that officials will not raise interest rates when unemployment is low to curb potential inflation. Federal Reserve Chairman Powell stated that officials unanimously agreed that monetary policy decisions should not be "solely" based on their estimates of where the long-term unemployment rate should be stable. However, he noted that the 2020 change was never intended to "permanently give up" the ability to raise rates when the labor market is strong due to expected rising inflation. 2. Officials removed language stating that they would only address insufficient full employment. The long-term objectives and monetary policy strategy statement now more clearly states, "The unemployment rate may at times be above the Committee's estimate of the longer-run normal rate, but this need not necessarily present a risk to price stability." 3. Federal Reserve officials reiterated the 2% inflation target and the importance of stabilizing inflation expectations. However, policymakers abandoned the "make-up strategy" introduced in 2020, which required tolerating above-target inflation to make up for periods of below-target inflation. 4. The strategic document now states, "The monetary policy strategy is intended to promote maximum employment and stable prices under broad-based economic conditions." Powell noted that this is in stark contrast to previous language describing low interest rates as a "defining feature of the economic landscape." The updated framework has received unanimous approval from the Federal Open Market Committee, and officials stated that they plan to review this strategy every five years.