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Fed doubles down on pretending inflation isn't already far above 'target'

Section: Daily Dispatches

Federal Reserve Considers Letting Inflation Run Above Target

By Brendan Greeley
Financial Times, London
Monday, December 2, 2019

The Federal Reserve is considering introducing a rule that would let inflation run above its 2 percent target, a potentially significant shift in its interest rate policy.

The Fed's year-long review of its monetary policy tools is due to conclude next year and, according to interviews with current and former policymakers, the central bank is considering a promise that when it misses its inflation target, it will then temporarily raise that target, to make up for lost inflation.

... Dispatch continues below ...


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The idea would be to avoid entrenching low U.S. price growth which has consistently undershot its goal.

If the Fed adopts this so-called "make-up strategy," it would mark the biggest shift in how it carries out its interest rate policy since it began to target 2 percent inflation in 2012.

Policymakers are frustrated by the failure of prices to hit their target even as U.S. unemployment has plumbed 50-year lows.

The new policy would require "making it clear that it's acceptable that to average 2 percent, you can't have only observations that are below 2 percent," Eric Rosengren, president of the Federal Reserve Bank of Boston, said in an interview with the Financial Times last week. ...

... For the remainder of the report:

https://www.ft.com/content/b07f7354-1165-11ea-a7e6-62bf4f9e548a

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