The long-standing presumption that accommodation should be reduced preemptively when the unemployment rate nears estimates of the neutral rate in anticipation of high inflation that is unlikely to materialize risks an unwarranted loss of opportunity for many of the most economically vulnerable Americans.10 It may curtail progress for racial and ethnic groups that have faced systemic challenges in the labor force.
Instead, the shortfalls approach will enable the labor market to continue to improve absent clear indications of high inflationary pressures or an unmooring of inflation expectations to the upside. The FOMC has set out forward guidance on the policy rate and asset purchases that implements the new framework.