Jackson Hole 2025 and the Fed's New Interest Rate Framework

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There are moments that seem like just dry speeches, but in reality mark turning points in global economic history. The Jackson Hole conference is one of them – where successive Fed Chairs not only talk about monetary policy, but also rewrite the “rules of the game” for the world's financial markets.

And Jackson Hole 2025 is the most special: this is Jerome Powell's final speech as Fed Chair. After more than a decade at the helm, Powell ends his term with a dual message: dovish short-term to avoid recession, but long-term return to 2% discipline after killing FAIT – the failed experiment after just 5 years.

From operating policy based on credibility and vague promises before 2012, the Fed gradually moved to transparency by formalizing the 2% inflation target. In 2020, they boldly experimented with the FAIT framework – allowing controlled inflation “overshooting” to compensate for years that were too low. But just 5 years later, the harsh realities of COVID, war, and high inflation forced the Fed to reconsider: FAIT is no longer suitable.

In this week's article, Viethustler will dissect with you the layers of the Fed's monetary policy framework through three historical milestones: 2012 – 2020 – 2025.

• Before 2012: When the Fed operated on personal credibility and the “public secret” of 2% inflation not yet acknowledged.

• 2012 – Transparency: For the first time, the 2% figure became the official anchor, bringing the Fed into the global “inflation targeting club”.

• 2020 – FAIT and the bold experiment: The Fed allowed inflation to “overshoot” to make up for shortfalls, while placing stronger emphasis on employment.

• 2020–2025: When the pandemic, supply shocks, and high inflation turned FAIT into a double-edged sword, forcing the Fed to pivot to Volcker-lite.

• 2025 – Killing FAIT, return to 2% discipline: Powell sends a dual message: dovish short-term to avoid recession, hawkish long-term to protect price credibility.

• Future – Where will the Fed go? Will there be the first cut in September, 2–3 cuts in the year, and rates gradually stabilizing around 3–3.5%?