Fed Abandons Flexible Inflation Targeting Framework

Fed Abandons Flexible Inflation Targeting Framework

On August 22, 2025, Federal Reserve Chair Jerome Powell announced at the Jackson Hole symposium a pivot away from the 2020 flexible average inflation targeting framework.

This shift signals potential changes in US monetary policy affecting various markets, including cryptocurrency volatility and investor strategies.

The Federal Reserve announced the abandonment of its 2020 flexible average inflation targeting framework on August 22, 2025. This shift indicates a significant change in policy approach aimed at managing inflation differently. Jerome Powell revealed this at the Jackson Hole symposium.

Chair Jerome H. Powell stated the U.S. economy’s resilience amidst policy changes. The Federal Reserve Board’s decision signals a return to pre-2020 policies to mediate economic stability. Powell highlighted strategies in a speech, emphasizing policy review developments.

“Over the course of this year, the U.S. economy has shown resilience in a context of sweeping changes in economic policy…. I will then turn to the results of our second public review of our monetary policy framework, as captured in the revised Statement on Longer-Run Goals and Monetary Policy Strategy that we released today.” – Jerome H. Powell, Chair, Federal Reserve, Federal Reserve Speech

The stock market experienced rallies in major indices post-announcement, reflecting investor optimism. Historically, such shifts have impacted the crypto market with increased volatility in Bitcoin and Ethereum, aligning with rate adjustments and market expectations.

This policy shift affects financial markets and could influence crypto asset allocations. Experts view this as a return to tighter interest rate management, impacting BTC, ETH, and DeFi. Stablecoins may see liquidity adjustments as interest rates fluctuate.

Past Fed policy changes have included pivots in 2018 and 2020, affecting market dynamics. BTC and ETH responded notably to these historical shifts with volatility. This change could set the stage for further cryptocurrency interest rate sensitivity.

Potential outcomes include increased market volatility and shifts in investor strategies towards cryptocurrencies. Historical data suggests market adjustments could follow, in line with past Federal Reserve policy modifications. Powell’s remarks hint at continued vigilance in economic strategy.