Ben Emons, Columnist

When the Fed Talks Price-Level Targets, Markets Should Shudder

Neither bonds nor equities are pricing in much of a premium for the prospect of faster inflation, increasing the risk of a correction.

January 31, 2018 at 11:00 AM UTC

By Ben Emons

Ben Emons is the founder of FedWatch Advisors, a firm specialized in analysis and investing around the Fed. Previously he was associated with NewEdge Wealth as head of fixed income and Medley Global Advisors as Managing Director of Global Macro Strategy. The opinions expressed are his own.

The Fed's new inflation debate has markets on edge.
Photographer: Michael Nagle/Bloomberg

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Despite its best efforts, the Federal Reserve has been unable to get the rate of inflation to its target of 2 percent. So now, some policy makers are talking about a new strategy known as price-level targeting. Markets better hope it doesn't come to that.

The difference between an inflation target and price-level targeting may seem like semantics, but they are very different. Under the former, the Fed would do what it takes until the rate of inflation reached 2 percent. Under the latter, it would essentially allow inflation to rise above the 2 percent target for an extended period to make up for the times when it failed to meet that level.