The Federal Reserve announces, a change is coming

The Federal Reserve is about to announce the 'new framework' on Friday — explaining the five years of soaring inflation, ample job vacancies, and uncertainty becoming the slogan.

It sounds difficult to understand.

The current framework was released in 2020, during the 'global pandemic outbreak.' At that time, the Federal Reserve proposed not to rush to raise interest rates just because inflation was showing some signs; we should prioritize a broader and more inclusive job market. In other words, what was worrisome then was 'underemployment,' not 'excessive inflation.' But after the pandemic, inflation surged to a 40-year high, and the strategy of 'tolerating high inflation to preserve employment' completely backfired.

Now, times have changed:

2020 → Inflation was too low, the economy was weak for a long time.

2025 → Inflation is relatively high, there is room for interest rates, and the Federal Reserve's concerns have changed.

So Powell now needs to tell people: 'Price stability is a prerequisite; with price stability, we can achieve long-term, broadly beneficial employment prosperity.'

This is a discourse upgrade: it seems that the employment goal has not been abandoned, but in essence, the fight against inflation is prioritized — Trump might not like hearing this, meaning 'interest rate cuts must be cautious.'

The new framework is likely to be:

Not completely abandoning the term 'inclusive employment' from 2020 (after all, it sounds good politically).

But it will be clearly emphasized: we must first control inflation before we can talk about stable employment.

A bit of a return to the 'classic inflation targeting' before the pandemic → More directly targeting 2% inflation.

This 'framework reboot' is providing the Federal Reserve with a narrative step: inflation remains high, the goal has become 'first put out the fire, then talk about development.' It is not only a 'framework reboot,' but also a narrative reset — the new framework means the Federal Reserve will only gradually lower interest rates and will not suddenly turn on the tap.