The era of near-zero interest rates is unlikely to return in the near term, Federal Reserve Chair Jerome Powell said in prepared remarks Thursday. “The economic environment has changed significantly since 2020,” when the central bank conducted its first-ever policy framework review, Powell said at the Second Thomas Laubach Research Conference in Washington, DC. “Longer-term interest rates are a good deal higher now, driven largely by real rates given the stability of longer-term inflation expectations.”
Although inflation expectations are aligned with the Fed’s 2% target, Powell warned, “Higher real rates may also reflect the possibility that inflation could be more volatile going forward than in the inter-crisis period of the 2010s. We may be entering a period of more frequent, and potentially more persistent, supply shocks — a difficult challenge for the economy and for central banks.”
In preparing a follow-up policy framework review, the Federal Open Market Committee is “engaged in discussions about what we have learned from the experience of the past five years,” Powell said. “We plan to complete consideration of specific changes to the consensus statement in coming months.”
