Fed's new policy shift to have no major impact, say economists

BENGALURU (Sept 11) - The U.S. Federal Reserve’s latest policy shift will not have any significant impact on the economy, according to a majority of economists in a Reuters poll who do not expect the central bank to meet its dual mandate until 2023 at least.

In a landmark shift to a more tolerant stance on inflation, the Fed’s new monetary policy strategy pledged to address maximum employment by letting inflation run above its 2% target and suggested interest rates would stay near zero for years to come.

But the Sept. 8-10 poll showed the Fed’s preferred inflation gauge - the core Personal Consumption Expenditures (PCE) price index - was forecast to average 1.3% this year, 1.5% next and 1.7% in 2022, largely unchanged from the previous poll.

Over three-quarters of 47 economists responding to an additional question said the Fed’s change would not have any significant impact on the U.S. economy, which suffered its biggest fall since the Great Depression last quarter.

“While the Fed’s step to make the inflation target ‘more’ symmetric may benefit the wages of the average American somewhere beyond 2022, it could be argued the Fed’s policies have become part of the problem, instead of the solution,” said Philip Marey, senior U.S. strategist at Rabobank.

“The current crisis response has made it painfully clear again that the Fed’s policies contributed to a form of capitalism where the rewards benefit high income individuals and large corporations, while small businesses and low income individuals bear the burden.”

Reuters