A group of former top central bankers is urging the U.S. Federal Reserve to abandon its current dual focus on inflation and employment, recommending a sharper, singular commitment to controlling inflation. The advice comes as the Fed reevaluates its strategic framework amid ongoing debate over its post-pandemic policies.
G30 Panel Recommends Shifting Away from Dual Mandate
The influential Group of Thirty (G30), chaired by former New York Fed President William Dudley and composed of global central bank veterans, argues the Fed should drop its current approach of balancing inflation and broad-based employment. Instead, the panel urges a return to prioritizing the 2% inflation target, even if that means sidelining employment as a policy goal.
According to the report, the Fed’s tools are “ill-suited” for ensuring inclusive employment outcomes without compromising its ability to meet inflation targets.
A Pandemic-Era Strategy Under Review
The Fed’s current strategy was introduced in 2020, during the height of the COVID-19 economic fallout. At the time, it embraced a flexible approach, allowing periods of higher inflation to compensate for previous shortfalls—while also elevating employment equality as a key objective.
The G30 panel contends this framework was reasonable for the 2010s, a period defined by low inflation and interest rates. However, it warns that the policy weakened the Fed’s responsiveness when inflation pressures mounted after the pandemic.
Slow Response and Risk of Overcorrection
The report criticizes the Fed for “fighting the last war,” saying it underestimated inflation risks in 2021 due to outdated assumptions. The result: delayed interest rate hikes and a strategy that allowed inflation to surge amid a tight labor market and strong growth.
Although the Fed eventually responded with rapid rate hikes, this abrupt tightening introduced volatility in financial markets and raised fears of losing public confidence in its ability to manage inflation.
Suggested Reforms to Restore Credibility
To restore credibility and enhance effectiveness, the G30 recommends the Fed:
Remove the employment equality language from its policy framework
Return to a strict 2% inflation focus
Provide more robust economic forecasts
Clarify its use of bond purchases as a policy tool
These changes, the panel argues, would better equip the Fed to navigate future shocks and maintain control over inflation expectations.
Is It Time to Redefine Central Banking Goals?
As the Federal Reserve reassesses its strategy, a critical question emerges: Should central banks aim to address social inequality—or stick to their core mandate of price stability? The answer could shape global economic policy for years to come.
