The Federal Reserve last week said it would allow inflation to overshoot its 2% goal to compensate for past shortfalls, but a number of regional central bank officials appeared to stress there are still limits to how high they will let it go.

The officials seemed to suggest there was little chance they would allow inflation to hit 3%, preferring something closer to the target.

On...

A day after the Federal Reserve announced a shift that would formally accept inflation over its 2% target to make up for a period where it fell short of the goal, a new paper warns the central bank may be going down a perilous road.

The research, to be presented at an online conference held by the Federal Reserve Bank of Kansas City, sought...

Two Federal Reserve officials cautioned in television appearances Friday they expect the economic recovery from the coronavirus pandemic to be slow-moving.

“I do believe that the recovery is going to be a slow one,” Federal Reserve Bank of Cleveland leader Loretta Mester said on CNBC. “There’s more pain out there” and while it will take some time to understand how events are playing out, “accommodative monetary policy is going to be very important throughout this recovery. And I do believe that fiscal policy is going to need...

The Bank of England has multiple ways to support the U.K. economy in the months ahead if recovery from the coronavirus pandemic disappoints, BOE Gov. Andrew Bailey said Friday.

“We are not out of firepower by any means,” Mr. Bailey said in a speech to the Federal Reserve Bank of Kansas City’s annual Jackson Hole economic symposium, according to a text of his remarks. The conference is being held online this year because of the pandemic.

Two Federal Reserve officials who spoke in the wake of the announcement of the central bank’s new approach to inflation targeting shed some light on how much of an overshoot of the central bank’s 2% inflation target they’re willing to accept.

The policy makers, Robert Kaplan of the Dallas Fed and James Bullard of the St. Louis Fed, spoke separately in television interviews Thursday, weighing in after the Fed said earlier in the day that it would allow inflation to moderately exceed its official 2% goal if price pressures...

The Federal Reserve’s new strategy means that interest rates are likely to stay exceptionally low for a longer—a boon to people looking for work, buying a home or investing in stocks.

The central bank Thursday set aside its longtime strategy of raising interest rates when it expects inflation to start moving higher.

In  practice, that means...

U.S. consumer spending rose more moderately pace in July than in prior months, as incomes climbed and the labor market continued to add jobs.

Personal consumption expenditures, a measure of household spending on everything from haircuts to new cars, increased a seasonally adjusted 1.9% in July from the prior month, the Commerce Department...

Good day. By signaling it wanted inflation to rise modestly above its 2% target, the Federal Reserve may have revealed how inflation targeting, widely adopted over the last quarter century, might have outlived its usefulness in a world of lower interest rates. Meanwhile, Bank of Canada leader Tiff Macklem warned that unconventional monetary policies are challenging perceptions of central banks’ independence, calling for increased engagement with the public. 

 Now on to today’s news and analysis.

With the revamp of its monetary policy framework, the Federal Reserve has subtly but clearly shifted its priorities away from inflation to employment.

The practical significance is small. With inflation already below the Fed’s 2% target and unemployment above 10%, interest rates were going to stay near zero for some years to come, and that hasn’t changed.

But it’s an important institutional and philosophical shift. Like other pivots over the central bank’s 107-year history, this one comes in response to a changed world.

Central banks have long operated on the assumption that there is a trade-off between employment and inflation. As the unemployment rate drops below some “natural” level, inflation starts to rise, a relationship dubbed the Phillips curve. That means unemployment could be both too high or too low. The Fed in its old operating principles thus sought to minimize “deviations” of unemployment from this natural level. In practice, this meant...

There may be less to the Federal Reserve’s new monetary policy regime than it appeared when announced.

On Thursday, the Fed said it would seek to achieve its 2% inflation goal on average, in what central bank leader Jerome Powell referred to as a system of flexible inflation targeting. Mr. Powell explained this new regime codified how the Fed had already been operating, and how in explicitly allowing for inflation to go over to the target, the updated system could help the central bank ward off the risk that already low levels...

The Federal Reserve’s new strategy means that interest rates are likely to stay exceptionally low for a longer—a boon to people looking for work, buying a home or investing in stocks.

The central bank Thursday set aside its longtime strategy of raising interest rates when it expects inflation to start moving higher.

In  practice, that means...

Central banks need to exert more effort in talking to and listening to the general public when crafting policy, especially in an era when trust in public institutions is low, Bank of Canada Gov. Tiff Macklem said Thursday.

Increased engagement with the public would help central bankers make better policy decisions and enhance their reputation among the public, Mr. Macklem said in remarks at a virtual symposium organized by the Federal Reserve Bank of Kansas City.

Two Federal Reserve officials who spoke in the wake of the announcement of the central bank’s new approach to inflation targeting shed some light on how much of an overshoot of the central bank’s 2% inflation target they’re willing to accept.

The policy makers, Robert Kaplan of the Dallas Fed and James Bullard of the St. Louis Fed, spoke separately in television interviews Thursday, weighing in after the Fed said earlier in the day that it would allow inflation to moderately exceed its official 2% goal if price pressures...

Mexican central bankers weighed a worsening economic outlook against a recent rise in inflation as they cut interest rates earlier this month, with one board member calling for a slower pace of easing, according to minutes of their meeting released Thursday.

The Bank of Mexico’s five-member board of governors voted 4-1 on Aug. 13 to reduce the overnight interest-rate target by a half percentage point to a four-year low 4.5%, after Mexico’s economy suffered a record contraction in the second quarter.

OTTAWA—Bank of Canada Gov. Tiff Macklem said the economy is posting impressive gains after a sharp pandemic-induced decline, but expects initial momentum to give way to a “pretty long, bumpy ride.”

Through these peaks and valleys, he said it is “really important for monetary policy to provide support through the whole long recovery.”

His comments...

Federal Reserve Chairman Jerome Powell discussed changes to how the central bank will set monetary policy, the Fed’s response to the economic shock caused by the coronavirus pandemic and community outreach efforts made by his bank, during a virtual economic symposium Thursday organized by the Kansas City Fed. Susan M. Collins, provost at the University of Michigan, served as moderator. Here is a transcript, lightly edited for clarity and length.

JEROME POWELL:  The Kansas City Fed’s Economic Policy Symposiums have consistently...

The coronavirus pandemic and its brutal impact on the U.S. economy is likely to reverberate for years, but some of the worst case scenarios can be eased by a strong government effort to prevent firms from failing, according to a paper that will be presented at a Federal Reserve research conference.

The long-run costs to the economy from so-called economic scarring related to the pandemic are “many times higher than the estimates of the short-run losses in output,” write Julian Kozlowski of the Federal Reserve Bank of St....

Business dynamism is on the decline in the U.S. and a more vigorous attempt by the government to promote competition among companies could turn that around, says a paper to be presented at a Kansas City Fed research conference Thursday.

The paper’s authors, Ufuk Akcigit of the University of Chicago and Sina Ates of the Federal Reserve, tie...

OTTAWA—Canada needs an inflation gauge that is as accurate as possible because consumers believe official data lowball price increases —especially during the pandemic, the Bank of Canada’s second-highest ranking official said.

Carolyn Wilkins, the Bank of Canada’s senior deputy governor, said consultations the bank held last year made it “loud and clear” that how Canada’s official inflation rate is measured needs a rethink. Work on a more accurate inflation gauge, in conjunction with the country’s main data-gathering agency,...

The Federal Reserve unanimously approved on Thursday a new strategy that will effectively set aside a practice it has followed for more than three decades to pre-emptively lift interest rates to head off higher inflation.

Fed Chairman Jerome Powell unveiled the updates in a speech set for delivery at a virtual symposium on Thursday, the most ambitious revamp of the Fed policy-setting framework since it was first approved in 2012. The practical effect is that it may be a very long time before the Fed considers raising interest rates.

Mr. Powell said the changes reflected lessons the central bank officials had learned in recent years about how inflation didn’t rise as anticipated when unemployment fell to historically low levels.

“It reflects our view that a robust job market can be sustained without causing an outbreak of inflation,” said Mr. Powell.

The Fed had been moving in this direction over the last 18 months, a point made clear in early...

WASHINGTON—As Democrats and Republicans haggle over the next coronavirus-relief bill, a giant pot of money remains largely unused.

In March, Congress gave the Treasury Department  $454 billion to backstop aggressive new lending efforts by the Federal Reserve to distressed businesses and state and local governments. Five months later, more than half—$259 billion—is still uncommitted.

The...

No need to pack bear spray this year.

The coronavirus has scrapped the Federal Reserve Bank of Kansas City’s annual retreat of global central bankers in the mountains of Jackson Hole, Wyo. Instead, the event will be conducted online, viewable by the public via live stream, for the first time since the symposium began in 1978.

Fed Chairman...

The number of Americans applying for unemployment benefits likely held near one million last week, an indication that companies continue to lay off workers even as the broader economy shows signs of recovering from the economic downturn.

New applications for unemployment benefits have stagnated around one million a week recently, significantly lower than a peak of near seven million in March but well above the pre-pandemic levels of about 200,000 claims a week.

In a much-anticipated speech this week, Federal Reserve Chairman Jerome Powell is expected to lay out a new framework for meeting its often-elusive goal of 2% inflation.

When he’s done, he should keep his jacket on, because a proliferation of other missions await. Full employment and low inflation are no longer enough. In recent years the Fed has been asked to prevent financial crises, shrink the trade deficit, tackle climate change and, now, eliminate racial economic disparities.