The Core Shift in Federal Reserve Policy: The End of the 2020 Framework, Returning to Tradition

1. Core Event: According to “Federal Reserve Mouthpiece” Nick Timiraos's forecast, Powell will announce the end of the monetary policy framework introduced in 2020 at the Jackson Hole Symposium in August 2025, returning to a more traditional and flexible strategy to avoid a repeat of high inflation.

2. Contents of the 2020 Framework: First, it allows inflation to be “moderately above 2%” to compensate for previous periods of underperformance; second, it only focuses on high unemployment rates, no longer worrying about low unemployment rates, and abandons preemptive interest rate hikes.

3. Reasons for Framework Failure: Inflation suddenly surged in 2021, but the framework caused the Federal Reserve to stick to low interest rates to promote employment, delaying interest rate hikes until March 2022, ultimately leading to the highest inflation in four decades.

4. Current Adjustment Direction: Exit the “aggressive employment promotion” goal, allowing the policy framework to return to traditional modes, restoring a dual flexible focus on inflation and employment, rather than a single bias toward one goal.

5. Controversy: Economists disagree on the reasons for the failure—some believe it was the 2020 framework itself that caused the delayed response, while others think it was a misjudgment of “temporary inflation” in 2021 and concern about market shocks led to reluctance to break policy commitments.

6. Key Lesson: The policy framework needs to be “robust,” not assuming that future economic conditions will be the same as the past, and must possess the flexibility to respond to dual shocks of inflation and employment.