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Fed’s Powell cautions about higher long-term rates as ‘supply shocks’ provide policy challenges

  • Federal Reserve Chair Jerome Powell cautioned on May 15, 2025, in Washington, DC, that supply shocks might cause longer-term higher interest rates.
  • Powell discussed the 2025 policy framework review prompted by changes since the 2020 adoption of average inflation targeting amid prior high inflation and rate hikes.
  • He highlighted that supply shocks have increased volatility, complicating efforts to balance inflation control and employment support, and acknowledged the need for clearer communication.
  • Powell indicated that the economy could face supply disruptions more often and for longer durations, posing significant difficulties for both economic stability and central bank policymaking, while reaffirming that maintaining a 2% inflation goal remains a key focus.
  • The review is expected to lead to revised Fed policies and communication strategies reflecting current economic conditions, with likely sustained elevated interest rates and a flexible response to inflation and labor data.
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When Will The Fed Cut Interest Rates?

William J. Luther, The Daily Economy The Fed should seek to avoid its recent mistakes, and keep nominal spending on a stable trajectory.

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Quartz broke the news in United States on Thursday, May 15, 2025.
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