Inflating US exceptionalism

Fed's new policy is not about creating inflation for its own sake

clock • 3 min read

The decision by the US Federal Reserve to adopt an average inflation target has no immediate relevance. In the long-term, however, its impact could be profound.

US inflation is currently running at around 1%. For the Fed to convince anyone that it is on target to meet its five-year average of 2%, inflation would have to be at 3% for more than a year. To put that into perspective, US inflation has not been at 3% since 2011. This is not, however, just a move for the here and now. The Fed deliberated long and hard over making this change and has made it clear the new framework is to remain in place for at least five years. This is about hardening its market guidance and showing that it is not going to be pushed into a tighter monetary policy settin...

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