In this March 3, 2020 file photo, Federal Reserve Chair Jerome Powell speaks during a news conference to discuss an announcement from the Federal Open Market Committee, in Washington. (AP Photo/Jacquelyn Martin, File)
By Martin Crutsinger
The Federal Reserve announced a significant change Thursday in how it manages interest rates by saying it plans to keep rates near zero even after inflation has exceeded the Fed’s 2% target level.
The change signifies that the Fed is prepared to tolerate a higher level of inflation than it generally has in the past. And it means that borrowing rates for households and businesses — for everything from auto loans and home mortgages to corporate expansion — will likely remain ultra-low for years to come.
The new goal says that “following periods when inflation has been running persistently below 2%, appropriate monetary policy will likely aim to achieve inflation moderately above 2% for some time.”
The new Fed policy sought to underscore its belief that a low jobless rate was good for the economy by saying it would seek to assess the “shortfalls” in employment from the maximum level.
In a speech detailing the changes, Chairman Jerome Powell made clear that the policy change reflects the reality that high inflation — once the biggest threat to the economy — no longer appears to pose a serious danger, even when unemployment is low and the economy is growing strongly. Rather, Powell said, the economy has evolved in a way that allows the Fed to keep rates much lower than it otherwise would without igniting price pressures.
“The economy is always evolving,” Powell said. “Our revised statement reflects our appreciation for the benefits of a strong labor market, particularly for many in low- and moderate-income communities and that a robust job market can be sustained without causing an unwelcome increase in inflation."
In his speech, Powell said that the Fed's decision to allow unemployment to fall to a 50-year low before the pandemic had played an important role in lifting the fortunes of low-income workers.
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Michelle Krebs, Executive Analyst at Cox Automotive, discusses the factors that led to Toyotas sales growth and highlights the challenges automakers have shifting to all-electric fleets.
The December jobs report was a mixed bag, with the U.S. adding just 199,000 jobs, less than half of the 422,000 forecasted. But there were some bright spots - the unemployment rate fell to a pandemic-era low of 3.9% and wages increased better than expected to 4.7% year-over-year. Heather Boushey, member of President Biden's council of economic advisers, joined Cheddar to gives her reaction to the jobs report, as well as an update on the state of the Build Back Better bill.
