For much of the past 17 years, the Federal Reserve has played a central role in shaping U.S. economic policy. It has injected trillions of dollars into the financial system, offered nearly a decade of ultra-cheap funding, and at one point, boldly crossed traditional thresholds during the COVID-19 pandemic. The Fed, under the leadership of Chair Jerome Powell, has also expanded its purview into areas like equity markets and climate change. However, we now find ourselves at a juncture where the Fed’s once dynamic actions have returned to a more mundane routine.

This shift in the Federal Reserve's role has morphed into something resembling a timid policy announcement, a debate over interest rates that feels less urgent, and a gradual reduction of bond holdings. Powell is now known not just for steering the economy through the crisis induced by the pandemic, but also for the growing impression that he has made the Federal Reserve's work a bit, well, boring.

James Bullard, former St. Louis Fed president, has been a witness to these transitional phases. He has observed the Fed's expanded role during the financial crisis of 2007-2009, saw it ramp up its responsibilities again during the pandemic, and now watches as it steps back toward a semblance of normalcy. "We had to return to a strong anti-inflationary stance," Bullard said. "This reminds me of times when you didn't have to worry about the zero lower bound on interest rates or balance sheet policies. In that regard, this is an ordinary normal. Times have changed."

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Now the dean of the Purdue University’s Krannert School of Management, Bullard will address a conference in Washington this Monday focused on the Fed's monetary policy framework. The conversation is expected to cover the strategies that achieve its mandates of price stability and maximum employment.

While the meeting on November 5 could stir controversy, particularly with indications that the newly elected president might attempt to dismiss or weaken Powell—reigniting tensions from his first term—the discussion around the framework also highlights another possibility. As inflation stabilizes and economic growth accelerates, with interest rates now occupying a longer historical range, the Federal Reserve could retreat somewhat behind the scenes, allowing the next administration to take the lead in managing inflationary pressures as a crucial part of their agenda.

The era of ultra-low interest rates appears to be fading into memory. Initially, the economic team picked to manage this period was rather conventional. The conference organized by the American Economic Association in Washington includes a keynote speech by Federal Reserve Governor Christopher Waller, another Powell appointee. Like Michelle Bowman, who also serves on the Fed Board, Waller is being viewed as a potential internal successor to Powell when his term expires in May 2026.

In line with Powell's strategy, Waller has emerged as a prominent advocate against inflation while steering the Federal Reserve system away from issues like climate change, which are not directly impacted by monetary policy. This shift has, at times, strained relations with some Republicans in Congress.

As the conversation progresses regarding reforms to the current Fed policy framework, Waller may lend a strong voice. The policy framework adopted in 2020 ushered the Fed into a new era that many now feel is misaligned with today's economic environment.

The outbreak of the pandemic led to massive unemployment, making labor market recovery a paramount objective for Fed officials who were determined to avoid the slow recovery observed after the 2007-2009 crisis. This prior crisis led to what many called a "lost decade," leaving a generation of workers traumatized. Long-standing low inflation and sub-zero interest rates raised alarms about economic stagnation.

The framework introduced in 2020 aimed to address these challenges by committing to "broad and inclusive" employment, driven by expectations that interest rates would remain low and often hover closer to zero than in previous decades.

The concept of a "zero lower bound" posed a dilemma for Federal Reserve officials: once rates hit zero, the options for further economic support became limited to politically sensitive or ineffective strategies. Central banks could consider lowering rates to negative territory—a form of tax on savings—or resort to unconventional methods like extensive bond-buying programs to suppress long-term rates while committing to maintaining low rates for an extended period.

The 2020 Federal Reserve solution involved pledging to allow periods of higher inflation to offset phases of weak price growth, which policymakers believed would help keep inflation around the 2% average target set by the Fed. However, this led to the most severe inflation in 40 years, prompting the Fed to impose significant rate hikes in 2022 and 2023. This transformation of monetary policy could potentially extricate the broader economy from stagnation and see fiscal and policy tools reclaim prominence.

As David Russell, Global Markets Strategy Director at TradeStation, states, "The economy and stock markets no longer require ultra-low interest rates." He emphasizes that in the future, trade and tax policies might become more influential than monetary policy itself.

The idea of pre-emptive actions is now underscored as "necessary." Currently, officials within the Federal Reserve hold the view that inflation pressures will remain elevated, far removed from zero, allowing them to adjust rates up or down to meet their goals, a practice reminiscent of pre-2007 financial landscape.

Should there be significant shocks, these tools will still be at their disposal for reactivation. Some economists outline concerns that the incoming government’s policies, which may aim to raise import prices through tariffs, stimulate spending through tax cuts, and limit the labor supply via immigration controls, could upend the Fed’s perception of a balanced economy.

Yet, a growing faction believes that the Fed's current framework is overly tailored to the dynamics and risks that were predominant during and after the 2007-2009 crisis and the pandemic. There is a yearning to reflect a more cautious standpoint regarding inflation.

Research from the Federal Reserve staff indicates that adopting such a stance can yield better employment outcomes, leading to a revival of the old-school view of preemptively suppressing inflation before it becomes entrenched.

Economists Christina Romer and David Romer articulated in a research paper for the Brookings Institution conference last September that, "Proactive monetary policy action is not just appropriate; it is essential." They argued that the Federal Reserve "shouldn't deliberately seek a hot labor market," as rigid monetary tools “cannot…reduce poverty or address deepening inequalities.”

Powell appears to anticipate these forthcoming shifts, which are not unwelcome. These changes underscore the notion that the Federal Reserve's extensive support is no longer a necessity in America. In those early years of his tenure as central bank chair, Powell was less than satisfied with the extraordinary measures the Fed had to undertake.

After pushing the limits of the Fed's powers during the pandemic, he may pass on a more focused and purposeful institution to his successor.

Last month in Dallas, Powell stated, “The 20 years of low inflation ended just over a year and four months after we set the framework," referring to a return to a "more traditional" central bank approach. He mused, “Should we change the framework to reflect the higher rate environment, rendering some of the adjustments we’ve relied on in the past unnecessary?”