Fed unanimously adopts new policy framework of flexible inflation targeting, eliminates 'makeup' strategy for inflationIn Jackson Hole speech, says framework calls for balanced approach when central bank's goals in tensionPrior framework’s emphasis on overly specific set of economic conditions may have led to some confusionFramework removes language indicating zero-lower-bound is a defining feature of economyNew framework designed to work in a range of economic conditionsIdea of intentionally moderate inflation overshoot proved irrelevantNew framework emphasizes commitment to act forcefully to ensure longer-term inflation expectations remain well-anchoredFed still believes it may not need to tighten policy solely based on uncertain estimates that employment may be beyond its maximum sustainable levelShortfall language in previous statement posed communications challenge, and is removed in new frameworkPreemptive action likely would be warranted should tight labor market pose risk to price stabilityFed’s goals are in tension, must balance both sides of Fed’s mandateStability of unemployment rate allows Fed to 'proceed carefully' as we consider changes to policy stanceRisks to inflation tilted to upside, risks to employment to the downsideIn Jackson Hole speech says shifting balance of risks may warrant adjusting policy stanceDownside risks to labor market risingGDP growth has slowed notably, reflecting slowdown in consumer spendingLatest data indicates 12-month PCE inflation rose 2.6% in July; core rose 2.9%Effects of tariffs on consumer prices now clearly visible, expect effects to accumulate in coming monthsReasonable base case is inflation effects of tariffs will be short-livedPossible that tariff-driven upward pressure on prices could spur lasting inflation dynamic, but unlikely, given downside risks to labor marketCannot allow one-time increase in price level to be ongoing inflation problemTighter immigration has led to abrupt slowdown in labor force growth.Slowdown in job growth has not opened up a large margin of labor market slack, which we want to avoid.Labor supply has softened a line with demand, breakeven job growth is down sharply.Labor market in "curious kind of" balance.Stability of unemployment rate allows Fed to proceed carefully as we consider changes to policy stance.Risk to inflation tilted to the upside, risk to employment to the downside.Fed's goals are in tension, must balance both sides of Fed's mandate.Downside risk to labor market rising.GDP growth has slowed notably reflecting slowdown in consumer spending.Latest data indicates 12 month PCE inflation rose 2.6 in July core rose 2.9%.Effects of tariffs on consumer prices now clearly visible, expect effects to accumulate in coming months.Reasonable base case is inflation effects on tariffs will be short-lived. This article was written by Greg Michalowski at investinglive.com.