Chart of the week - A New Set of Goals


Chart of the Week – A New Set of Goals

After a nearly two-year review of its monetary policy strategy, tools, and communications, in August 2020 the Federal Reserve (Fed) released a revised set of goals to replace its long-held targets of achieving full employment and 2% inflation. The Fed will now seek to achieve inflation that averages 2% over the business cycle, allowing inflation to temporarily run above the 2% target to make up for past shortfalls.

On the employment front, instead of focusing on the headline unemployment rate, the Fed is seeking to drive down the unemployment rate across various racial and demographic groups with the aim of fostering a more inclusive recovery in labor markets

Unemployment Gaps by Race/Ethnicity

Difference From White Rate (Percentage Points)

Chart Source: NBER (National Bureau of Economic Research). The gray shaded areas represent recessions. NBER defines recession as a period of time involving a significant decline in economic activity that is spread across the economy and lasts more than a few months. Dates shown are January 1, 2007 to June 1, 2021.

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Inflation Outlook

Inflation has clearly surprised to the upside in recent months, driven by a strong recovery and supply-chain issues. However, the breadth of inflation has been somewhat muted. While many of the supply-chain disruptions are likely to continue, we estimate that the momentum in month-to-month increases in inflation is close to peaking. Looking beyond the near-term price volatility, we think that a more sustainable move in inflation is set to come.

We believe the Fed’s new flexibility around the 2% inflation target combined with its focus on broader, more inclusive measures of the labor markets will result in the Fed letting the economy “run hot.” This coupled with continued strong gross domestic product (GDP) growth and tightening labor markets should result in a broader and more sustainable increase in prices later in 2022.


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Past performance does not guarantee future results.

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The views expressed represent the investment team’s assessment of the market environment as of July 20, 2021, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject change without notice.

Charts shown throughout are for illustrative purposes only and not meant to predict actual results.

Chart is for illustrative purposes and is not representative of the performance of any specific investment.

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