Editor's note: Jimmy Zhu is a chief strategist at Singapore-based Fullerton Research. The article reflects the author's opinion, and not necessarily the views of CGTN.

Stock markets cheered after the Fed announced its new approach to its monetary policy setting, as interest rates were promised to remain near zero for an extended period of time. 

But in the long run, such a new framework could make it challenging for the U.S. central bank to counter any unexpected or unwelcomed events in the future. 

The Fed's new policy approach will seek to achieve inflation that averages 2 percent over time, instead of using preemptive measures, such as hiking rates when inflation was just shooting above 2 percent in the past.

Therefore, following the periods when inflation has been running below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.

The U.S. core PCE (personal consumption expenditure), the Fed's preferred inflation gauge, has been running an average reading of 1.6 percent over the past five years.

Its latest core PCE grew 1.3 percent in July, together with an average reading in the past five years, which indicates that the Fed is likely to keep the rates near zero for many years.

Federal Reserve chair Jerome Powell's speech last week mentioned that the labor market is strongly influenced by non-monetary factors that can change over time, thus the Federal Open Market Committee (FOMC) would not set a numerical objective for maximum employment. 

He also recognized that the strong labor market before the pandemic was generating employment opportunities for many Americans who in the past had not found jobs readily available. 

Usually inflation growth runs at the same pace with the expansion in the labor market. However, the strong labor market didn't substantially boost inflation growth over the past few years. 

One of the main reasons was that many of the jobs created belonged to the low-income group, and such had a limited impact on increasing consumption spending. 

Also, more advanced technology limited inflation growth, as more consumers chose to shop online instead of visiting physical shops. This made it more likely for consumers to purchase goods at relatively low prices.

After the pandemic broke out earlier this year, many tech firms accelerated the pace of innovating new products and services, as increasingly people had to work and shop online at home.  

Based on the current framework, the Fed may only start to consider tightening the policies when its preferred inflation-gauge consistently runs above 2 percent for 12 months, which hasn't happened since the global financial crisis in 2008 and will be more difficult to achieve after the pandemic.  

Given the relationship between the labor market and inflation has been less relevant in the past years, some market participants are concerned that the U.S. central bank wouldn't be able to tighten the policy again in decades under the new framework, even with the overwhelming labor market.

If so, the Fed will find it difficult to counter the next economic downturn or financial crisis. 

In the global financial crisis, the Fed cut benchmark rates by over 500 basis points to near-zero range, and still managed to slash rates by 150 basis points in March amid the outbreak in the U.S. 

However, the current near-zero interest rate leaves no room for the Fed to further reduce rates if needed. 

When it's impossible to further cut rates, the remaining option could be expanding its balance sheet. However, the value of purchased assets is nearly 7 trillion U.S. dollars, much higher than the previous peak of around 4.5 trillion dollars in 2014. 

Such historical levels of its balance sheet also limit further expansion if markets call for that, for example, when the U.S. financial condition turns much tighter in the future.  

The S&P 500 index closed at another record level last Friday, largely buoyed by the Fed's latest dovish stance. However, once economic data deteriorates again, the market will find fewer support measures available to the Fed, which will pose a substantial challenge.

If the Fed can't satisfy market expectations, a sell-off in the stock market could be unavoidable.