Points | The Fed's Consensus Statement, Annotated
- Edward von der Schmidt
- Sep 12, 2025
- 11 min read
Uncertainty surrounds the Federal Reserve and the aftermath of the September 16-17 Federal Open Market Committee (FOMC) meeting. The Committee appears most likely to cut rates modestly (as markets and forecasters generally expect) and to signal a careful adjustment period without committing to a preset course, thus preserving the flexibility to pause or accelerate. That said, a September hold or even a larger initial cut are not entirely off the table. The Fed will balance competing labor market and inflation narratives while grappling with challenges to its independence. What guides these decisions?
12 SEP 2025
EDWARD VON DER SCHMIDT
The Statement on Longer-Run Goals and Monetary Policy Strategy
Are there cyclical employment conditions or risks that are concerning enough to merit an immediate adjustment lower in short-term rates, which are admittedly restrictive? Does the labor market's "curious kind of balance" give the Fed any cover to assess more data before committing to easing policy or else to moderate its pace? Given a visibly slowing economy, what might the arguments be in favor of cutting more aggressively?
How has the baseline outlook for the price of goods and services evolved? Has trade policy clarity and tough talk on inflation created enough rhetorical runway to cut without unsettling expectations or hazarding future credibility? Could an overriding need to assert the Fed's independence even warrant a hold, outlook permitting? Would a 25bp rate reduction and commitment to reassess pacing at each meeting do for now?
Fed officials and staff will examine such questions in preparing to discuss the economic and financial environment and the most suitable policy stance. In determining how to "proceed carefully", FOMC participants will rely upon the Fed's Statement on Longer-Run Goals and Monetary Policy Strategy. According to the Board of Governors of the Federal Reserve System, this "articulates the Committee's approach to monetary policy and serves as the foundation for its policy actions."
Otherwise known as the "consensus statement", the Statement on Longer-Run Goals and Monetary Policy Strategy is the Federal Reserve's public interpretation of its statutory responsibilities and the shared philosophy underlying U.S. monetary policy. Fed Chair Powell introduced the revised statement on August 22, which had the Committee's unanimous approval following an intensive periodic review. As Powell put it, the statement "is designed to give the public a clear sense of how we think about monetary policy".
Upcoming debates and those at the September FOMC especially will lean heavily on the consensus statement in framing, developing, and defending policy rationale. Here it is:
Chair Powell also addressed the revisions directly in his recent Jackson Hole speech:
Let's walk through what the revised consensus statement means.
| Mission
| Goals
1st Paragraph: Mission
Revised language (August 2025):
"The Federal Open Market Committee (FOMC) is firmly committed to fulfilling its statutory mandate from Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity facilitates well-informed decisionmaking by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society."
Removed or changed (from January 2024):
"... statutory mandate from the Congress ,,,"
Commentary:
The introduction is virtually unchanged. The Fed's mandate from Congress is three-fold: maximum employment, stable prices, and moderate long-term rates. In practice, achieving the first two goals satisfies the third.
Explainability, clear communication, and transparency are explicit goals. The Fed wants us to be able to understand why and how it does what it does.
Removing only the word "the" also shows just how closely the Fed prunes its diction.
2nd Paragraph: Goals
Revised language (August 2025):
"The Committee’s monetary policy strategy is designed to promote maximum employment and stable prices across a broad range of economic conditions. Employment, inflation, and long-term interest rates fluctuate over time in response to economic and financial disturbances. Monetary policy plays an important role in stabilizing the economy in response to these disturbances. The Committee’s primary means of adjusting the stance of monetary policy is through changes in the target range for the federal funds rate. The Committee is prepared to use its full range of tools to achieve its maximum employment and price stability goals, particularly if the federal funds rate is constrained by its effective lower bound."
*Added or changed language in bold.
Removed or changed (from January 2024):
"The Committee judges that the level of the federal funds rate consistent with maximum employment and price stability over the longer run has declined relative to its historical average. Therefore, the federal funds rate is likely to be constrained by its effective lower bound more frequently than in the past. Owing in part to the proximity of interest rates to the effective lower bound, the Committee judges that downward risks to employment and inflation have increased."
Commentary:
The Fed's purpose is to help foster stable economic conditions over time and across circumstances. It does so mostly through monetary policy actions and communications and primarily by administering the target range for the federal funds rate.
Although direct market participation is limited to only a subset of banks and other financial institutions, the fed funds rate or overnight cost of dollar reserves held at the Fed is the nominal price of money for a single day. It is the baseline opportunity cost of dollar funding and a fundamental component of domestic interest rates, foreign exchange, financial commodities, and dollar-denominated valuations in general.
Adjusting the fed funds range lower or higher tends to ease or tighten financial conditions that affect the real economy and influences expectations and decision-making. This can indirectly accommodate or restrict economic activity down the line. Inflation concerns may call for higher rates to slow down activity and price gains, while employment concerns may call for lower rates to stimulate activity and support job markets and overall growth.
Language referencing the post-Crisis, pre-Covid rates environment was removed or deemphasized to reduce confusion. Instead, the August 2025 revisions were intended to cover "a broad range of economic conditions" rather than cater to specific scenarios.
3rd Paragraph: Maximum Employment
Revised language (August 2025):
"Durably achieving maximum employment fosters broad-based economic opportunities and benefits for all Americans. The Committee views maximum employment as the highest level of employment that can be achieved on a sustained basis in a context of price stability. The maximum level of employment is not directly measurable and changes over time owing largely to nonmonetary factors that affect the structure and dynamics of the labor market. Consequently, it would not be appropriate to specify a fixed goal for employment; rather, the Committee’s policy decisions must be informed by assessments of the maximum level of employment, recognizing that such assessments are necessarily uncertain and subject to revision. The Committee considers a wide range of indicators in making these assessments."
Added or changed language in bold.
Removed or changed (from January 2024):
"The maximum level of employment is a broad-based and inclusive goal that is not directly measurable ..."
"... the Committee’s policy decisions must be informed by assessments of the shortfalls of employment from its maximum level ..."
Commentary:
The Federal Reserve removed its "broad-based and inclusive" language so that its employment mandate would not be misconstrued. The central bank still made clear that it seeks to foster "broad-based economic opportunities and benefits for all Americans".
The Fed defines maximum employment as "the highest level of employment that can be achieved on a sustained basis in a context of price stability." Here, maximum employment is made contingent on price stability. The Fed will strive to sustain the lowest level of unemployment that is consistent with stable inflation and expectations, as opposed to the lowest level of inflation consistent with the highest possible employment.
The maximum level of employment is not observable and may change as factors affecting labor markets evolve. Progress toward this goal can only be estimated or inferred, so the Fed looks at a host of information from various sources to assess domestic employment conditions and decide whether policy adjustments are called for.
The Fed also removed its "shortfalls" language to avoid misinterpretation.
4th Paragraph: Price Stability
Revised language (August 2025):
"Price stability is essential for a sound and stable economy and supports the well-being of all Americans. The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee can specify a longer-run goal for inflation. The Committee reaffirms its judgment that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory maximum employment and price stability mandates.The Committee judges that longer-term inflation expectations that are well anchored at 2 percent foster price stability and moderate long-term interest rates and enhance the Committee’s ability to promote maximum employment in the face of significant economic disturbances. The Committee is prepared to act forcefully to ensure that longer-term inflation expectations remain well anchored."
Added or changed language in bold.
Removed or changed (from January 2024):
"... hence the Committee has the ability to specify a longer-run goal for inflation ..."
"... is most consistent over the longer run with the Federal Reserve’s statutory mandate."
"In order to anchor longer-term inflation expectations at this level, the Committee seeks to achieve inflation that averages 2 percent over time, and therefore judges that, following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time."
Commentary:
Price stability is the Fed's most important long-run goal and of primary concern to the public. The Fed cannot effectively achieve maximum employment or moderate long-term interest rates without price stability, making the latter a first among otherwise equal mandates. Stable prices are conducive to better employment outcomes and sustained economic prosperity.
Because monetary policy can directly influence inflation or general price growth over time, the Fed can specify a target. In the U.S., 2 percent inflation has been chosen as a level (empirically) consistent with price stability and maximum employment. The Fed's preferred measure of inflation is the annual (12-month) change in the PCE price index - not CPI.
The Fed does not just want to achieve 2 percent inflation - it wants everyone to believe that it will continue to do so in the future. A credible inflation commitment is reflected in longer-run expectations implied by markets or measured by surveys that are consistent with the Fed's target. Maintaining well-anchored expectations also gives the Fed greater scope to support the economy when it needs to (e.g. by cutting rates) without destabilizing prices and thus helps to promote maximum employment.
Managing expectations of future inflation is a crucial part of achieving price stability. The belief that prices will move higher (or lower) can become self-fulfilling, detrimental, and difficult to counteract. At the same time, expectations that inflation will be at target have a way of producing that outcome. The public should be confident that the Fed will work to ensure price stability in order to strengthen the collective belief that inflation will remain at or return to target and to promote moderate longer-term interest rates. This is a key motivation for central bank independence.
In short, the Fed views satisfying price stability as sustaining 2 percent inflation over time without excessive deviations such that longer-run inflation expectations remain well-anchored near 2 percent and maximum employment can be achieved. If inflation expectations are at risk of becoming un-anchored (i.e., the public begins to believe that future inflation will be meaningfully above or below target), the Fed stands ready to "act forcefully" to bring them to heel. Maintaining stable inflation expectations is central to the Fed's mandate.
Note that the language removed from the previous statement referred to a so-called flexible average inflation targeting framework, whereby the Fed sought to make up for what were then shortfalls in inflation by accommodating above-target price growth for a time. After the pandemic experience, the Fed reversed course and returned to flexible inflation targeting instead. The latter seeks to consistently achieve inflation at or very near 2 percent without overcompensating for recent price trends.
5th Paragraph: Policy Considerations
Revised language (August 2025):
"Monetary policy actions tend to influence economic activity, employment, and prices with a lag. Moreover, sustainably achieving maximum employment and price stability depends on a stable financial system. Therefore, the Committee’s policy decisions reflect its longer-run goals, its medium- term outlook, and its assessments of the balance of risks, including risks to the financial system that could impede the attainment of the Committee’s goals."
Removed or changed (from January 2024):
"In setting monetary policy, the Committee seeks over time to mitigate shortfalls of employment from the Committee’s assessment of its maximum level and deviations of inflation from its longer-run goal."
Commentary:
Monetary policy can take time to work its way through the economy. While the Fed can quickly implement policy changes, influence expectations, or even directly intervene in markets, the full thrust of its accommodative, neutral, or restrictive stance may not be felt for months or years. Accordingly, the Fed incorporates a medium-term horizon (e.g. 18 months to 2 years) in its analysis and discussions.
Financial stability is also key to maintaining price stability and maximum employment. The dual mandate can be difficult to satisfy in a crisis or when markets are not functioning properly, so the Fed takes its role safeguarding the US financial system very seriously.
The Fed evaluates progress (or lack thereof) toward its price stability and maximum employment goals, formulates a medium-term outlook, and assesses future risks to achieving its mandate in order to determine the most appropriate policy path at any given time.
If inflation or unemployment were too high, for example, or were otherwise expected to materially and persistently deviate from longer-run goals, the Fed could be compelled to respond by revising its communications, adjusting administered rates, or even deploying more specialized tools.
6th Paragraph: Balancing Mandates
Revised language (August 2025):
"The Committee’s employment and inflation objectives are generally complementary. However, if the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking into account the extent of departures from its goals and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate. The Committee recognizes that employment may at times run above real-time assessments of maximum employment without necessarily creating risks to price stability."
Added or changed language in bold.
Removed or changed (from January 2024):
"However, under circumstances in which the Committee judges that the objectives are not complementary, it takes into account the employment shortfalls and inflation deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate."
Commentary:
Although instruments of monetary policy can be combined to suit various purposes, you generally cannot ease and tighten policy with the same tools at the same time. What happens if the Fed's goals are in conflict, like when inflation is above target and labor markets are deteriorating?
When the dual mandate goals of maximum employment and price stability call for opposing policy responses, the Fed weighs how far each goal is or will be from target and how long those circumstances are expected to persist. Larger gaps that are expected to take more time to resolve will command greater attention than smaller deviations that are expected to revert more quickly.
All things equal, greater downside risks to employment call for looser or more accommodative policy, greater upside risks to inflation call for tighter or more restrictive policy, and balanced risks call for more neutral policy that seeks neither to promote or restrict economic activity. Like maximum employment, neutral policy rates are not measured directly but inferred.
Policy has been "modestly" restrictive (i.e., rates are somewhat above neutral) as inflation has been of greater concern amid a resilient employment backdrop, but the outlook is evolving. A shifting balance of risks that accounts for slowing growth and a weakening labor market may soon warrant an adjustment lower in rates toward more neutral policy even as inflation remains above-target. This was Chair Powell's contention in Jackson Hole and will be the focal point of the September FOMC debate.
Lastly, the statement notes that it's possible for the economy to appear to be above estimated levels of maximum employment without actually imperiling price stability. Low unemployment may not necessarily indicate a "hot" economy and may not warrant preemptive tightening to head off inflation concerns in the absence of price pressures.
7th Paragraph: Adjustments and Review
Revised language (August 2025):
"The Committee intends to review these principles and to make adjustments as appropriate at its annual organizational meeting each January, and to undertake roughly every 5 years a thorough public review of its monetary policy strategy, tools, and communication practices."
Commentary:
The Fed will continue to decide whether to adjust the consensus statement every January. The central bank intends to carry out the type of extensive public review it just concluded every five years or so. Start the countdown!
This is not financial advice and should not be taken as such. The observations and opinions expressed here are protected by copyright and belong to Datum Research LLC. All rights reserved.