Fed to tolerate higher inflation in policy shift

The centrepiece of the Fed's new approach is the move to an average inflation target, which will allow it to overshoot the US central bank's per cent target to compensate for persistently low inflation, which has been weighing on the US and other economies in recent years. 

”Following periods when inflation has been running below 2 per cent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 per cent for some time,"Mr Powell said.

FT 27 August 2020

https://www.ft.com/content/e1e59faa-5005-4e1c-9d54-b1a8d4de9586

The Fed’s welcome inflation evolution

Since the financial crisis the major central banks have largely fallen short of their targets, however, undermining trust in the framework along the way. Averaging out inflation is more realistic

By moving the goalposts, Mr Powell is implicitly issuing a mea culpa for those earlier inflation misses. Some might query whether the framework should not be abandoned altogether. 

A question mark will hang, too, over whether or not central banks can ever spur inflation back up to 2 per cent  let alone higher than that.

FT Editorial 27 August 2020

https://www.ft.com/content/610e3e22-22f2-4aaa-b0c2-887db524e522

Inflation targeting has been successful because it managed to anchor expectations — until it did not.

https://englundmacro.blogspot.com/2020/07/the-troubling-bit-is-that-these.html