[Asia Economy Reporter Jeong Hyunjin] The Wall Street Journal (WSJ) reported on the 2nd (local time) that the U.S. Federal Reserve (Fed) is considering abandoning its preemptive interest rate hike strategy aimed at curbing high inflation. This is interpreted as a message to maintain low interest rates for an extended period amid growing concerns about a long-term economic recession.
According to the report, the Fed is expected to somewhat soften its stance by allowing the inflation rate to be slightly higher than the target level of 2%. This means that even if inflation exceeds the target for a certain period to raise inflation from below the current target level, the Fed will not engage in preemptive rate hikes.
Jan Hatzius, Chief Economist at Goldman Sachs, said, "This is a significant change in terms of how they think about balancing employment and inflation," adding, "Many of these things look very different compared to several years ago."
The WSJ emphasized that this change in the Fed's stance fundamentally aims to inform the market that the current low interest rates will be maintained for a very long time. The WSJ evaluated that the Fed's preemptive rate hikes to avoid high inflation have been a practice continued for about 30 years. However, the WSJ stressed that the market has become accustomed to the low interest rate environment.
Fed Chair Jerome Powell began reviewing this in order to strengthen the ability to respond to economic downturns under the likely continuation of the current 'zero (0)' level interest rates, and has been discussing it since last spring, the WSJ explained. In particular, the Fed held such discussions at the Federal Open Market Committee (FOMC) meeting on the 28th-29th of last month, and may attempt to reach a final conclusion at the next FOMC scheduled for the 15th-16th of next month. Chair Powell stated at a press conference immediately after the FOMC meeting last week, where the interest rate was held steady at 0.00-0.25%, that the Fed will soon complete a comprehensive review of its policy decision strategy.
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