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Fed to “relax” approach to managing inflation target

Citing persistently low U.S. inflation and the need to avoid creating any headwinds to job growth, the Fed is preparing to abandon its long-held practice of raising interest rates to preempt overheating in the economy that could threaten its 2% inflation target that it established in 2012, a tactic that it has used for over 30 years.

Chairmen Jerome Powell hinted at the shift in a news conference last week when he disclosed that the central bank would soon complete a comprehensive review of its policymaking strategy.

The change is unlikely to alter much, since interest rates are barely above zero and are expected to remain low for the foreseeable future. Longer term, central bankers, economists and investors expect rates to return to a more normal 4% or so once the economic recovery/expansion has matured.

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