G30 report on upcoming Federal Reserve monetary policy framework review calls for changes to improve implementation and communication of monetary policy

The Group of Thirty today published "The Federal Reserve Monetary Policy Framework Review: A Comprehensive Approach to Improve Robustness", chaired by William C. Dudley.

WASHINGTON, April 30, 2025 /PRNewswire-PRWeb/ -- The Group of Thirty (G30) today published "The Federal Reserve Monetary Policy Framework Review: A Comprehensive Approach to Improve Robustness." The study, chaired by William C. Dudley, former President of the Federal Reserve Bank of New York, analyses the U.S. Federal Reserve's current Monetary Policy Framework and its implementation over the last four years ahead of the Federal Reserve's formal review that will be completed later this year.

The Federal Reserve's Monetary Policy Framework focuses on the strategy, tools, and communication practices used to achieve its monetary objectives of maximum employment and price stability. The Federal Reserve will review and revise the most recent framework which was developed in 2020. The G30 Working Group on the 2025 Federal Reserve Monetary Policy Framework Review undertook its own analysis on the existing framework and how it was used to determine what adjustments could be made to make the framework more comprehensive and robust.

The report proposes six recommendations to improve the framework including on achieving the Federal Reserve's inflation and employment objectives, managing conflicts between the two objectives, quantitative easing and tightening, forecasting, and forward guidance. Additionally, moving beyond the scope of the upcoming framework review, the report explores other relevant issues including the FOMC's short-term interest rate instrument, supplemental leverage ratio modifications, and why bank supervision, regulation, and financial stability need to be considered in monetary policy decision-making. By utilizing the Federal Reserve's experience as a case study, lessons can be drawn for other central banks that also struggled to anticipate and react to the inflationary pressures seen during the COVID-19 pandemic.

William C. Dudley, Chair of the G30 Working Group on the 2025 Federal Reserve Monetary Policy Framework Review, stated: "The monetary policy framework must be robust to cover a wide range of economic scenarios and outlooks. Monetary policy objectives and tools should permit a timely response to misses on both sides of the Fed's employment and inflation objectives." Mr. Dudley continued: "We recommend replacing the flexible average inflation targeting regime (FAIT) with an average inflation targeting regime (AIT) with the 2 percent inflation target on a time horizon that also takes into account its employment objective. The central bank should also shift the employment objective back to seeking the maximum level of employment consistent with its 2 percent inflation target and provide clarity about how the trade-offs between the employment and inflation objectives will be managed when they are in conflict."

The former Vice-Chair of the Federal Open Market Committee (FOMC) added: "Clarity on how the Federal Reserve plans monetary policy to achieve its goals is essential. When a central bank's monetary policy is well understood, market prices can adjust as economic circumstances change in anticipation of the central bank's response."

Carolyn A. Wilkins, Project Advisor of the G30 Working Group on the 2025 Federal Reserve Monetary Policy Review and Senior Research Scholar at the Griswold Center for Economic Policy Studies at Princeton University, stated: "The report recommends that the central bank's staff forecast be published at the end of each FOMC meeting, including a baseline projection, and several alternative scenarios. We believe this would improve the public and market understanding of the information that the FOMC considers as it assesses the economic outlook and related uncertainty, as well as the FOMC's monetary policy reaction function." Ms. Wilkins added: "The Federal Reserve would benefit from extending the scope of the review to include monetary policy tools. In light of lessons learned from many central bank responses to COVID, the Working Group recommends the Federal Reserve develop a comprehensive framework for quantitative easing and tightening to articulate how QE and QT fit into the Fed's monetary framework and strategy. This should include clarity around objectives, an evaluation of expected net benefits for QE and QT, as well as a well-defined exit strategy."

The G30 Working Group on the 2025 Federal Reserve Monetary Policy Framework Review was Chaired by William C. Dudley who served as primary author of the final report. The Working Group included six other members: Mohamed El-Erian, Jacob Frenkel, Mervyn King, Guillermo Ortiz, Masaaki Shirakawa, and Yi Gang. We extend our gratitude to the Working Group members for their support, input, and dedication throughout the project.

The G30 also thanks Project Advisor, Carolyn A. Wilkins, for her engagement and contributions to the study and assistance drafting the report.

To receive a copy of "The Federal Reserve Monetary Policy Framework Review: A Comprehensive Approach to Improve Robustness", contact the G30 Press Officer Melissa Golding at +1 571-236-2820 or [email protected].

On April 30, 2025, at 10:30am EDT, the G30 hosted a live webinar discussion of the report with William Dudley and Carolyn Wilkins. A link to the event recording is available on the G30 website, www.group30.org.

The Group of Thirty is an independent global body comprised of economic and financial leaders from the public and private sectors and academia. It aims to deepen understanding of global economic and financial issues, to explore the international repercussions of decisions taken in the public and private sectors, and to examine the choices available to policymakers and market practitioners. The Group was established in 1978. The Chair of the Board of Trustees is Tharman Shanmugaratnam and the Chair of the Group is Raghuram G. Rajan. More information and membership bios are available at www.group30.org.

Media Contact

Stuart Mackintosh, The Group of Thirty, 1 202312472, [email protected], www.group30.org

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SOURCE The Group of Thirty