Will the Fed’s New Approach Make Any Difference?
The framework for monetary policy matters less than understanding what’s happening in the economy.
The narrative is what counts.
Photographer: Daniel Acker/Bloomberg
For over a year, all the big central banks have been reviewing their policy frameworks. The Federal Reserve recently announced the results of its deliberations at the virtual Jackson Hole symposium. Inflation targeting is to be replaced by, well, inflation targeting — or, to be more precise, by “average-inflation targeting.”
Bearing in mind that the long-run inflation target hasn’t changed — it remains at 2% — what does this amount to? Is it a damp squib, a substantive pragmatic response to new conditions, or just something to say after a highly publicized review made it necessary to come up with a fresh idea?