The Pandemic Is Testing the Federal Reserve’s New Policy Plan

Year 1 of the Fed’s framework, unveiled at its Jackson Hole conference in 2020, has included high inflation and job market healing. Now comes the hard part.

When Jerome H. Powell speaks at the Federal Reserve’s biggest annual conference on Friday, he will do so at a tense economic moment, as prices rise rapidly while millions of jobs remain missing from the labor market. That combination promises to test the meaning of a quiet revolution the central bank chair ushered in one year ago. Mr. Powell used his remarks at last year’s conference, known as the Jackson Hole economic symposium and held by the Federal Reserve Bank of Kansas City, to announce that Fed officials would no longer raise interest rates to cool off the economy just because joblessness was falling and inflation was expected to heat up. They first wanted proof that prices were climbing sustainably, and they would welcome gains slightly above their 2 percent goal. He was laying groundwork for a far more patient Fed approach, acknowledging the grim reality that across advanced economies, interest rates, growth and inflation had spent the 21st century slipping lower in a strength-sapping downward spiral. The goal was to stop the decline.