SUMMARY OF CHAIRMAN POWELL'S SPEECH AT JACKSON HOLE

1. What Chairman Powell said

- The main mission of the Fed is to keep inflation low and maintain a low unemployment rate.

- Currently, risks are changing, not just concerns about inflation but also worries that many people may lose their jobs.

- Tariffs are creating uncertainty, which could cause inflation to rise again but may also slow down the economy.

2. Labor supply and demand

- Powell stated that the labor market is weakening.

- Labor supply is not increasing much. Many older individuals have retired after COVID, while the new workforce is not enough to compensate.

- The demand for hiring by businesses is also decreasing as they are tightening spending.

3. Inflation target framework

- Previously, the Fed adopted a Flexible Average Inflation Targeting (FAIT) policy.

- This policy means that if previous inflation is below 2%, it is acceptable for it to exceed 2% for a period to balance out. This idea seems reasonable as it allows the economy to grow stronger.

- However, after COVID, inflation not only exceeded 2% but skyrocketed to 8–9%. This indicates that this management approach is no longer suitable.

- Currently, the Fed is gradually phasing out FAIT and becoming stricter. The Fed will maintain a continuous 2% inflation target, not allowing it to exceed for long and avoiding repeating the mistake of letting inflation get out of control.

4. Why this matters

- The current interest rates of the Fed are less than 1% compared to last year while the unemployment rate remains low.

- But risks are changing:

➤ If inflation returns due to tariffs → very dangerous.

➤ If unemployment rises sharply → also dangerous.