How (not) to review your monetary policy framework
The Fed made some mistakes in its last strategy review. As it prepares to have another go, it could learn from other central banks
The US Federal Reserve last completed an in-depth review of its monetary policy framework in 2020. Guided by research into price-level targeting and influenced by the experience of a decade struggling to escape the zero lower bound, policy-makers approved major changes to the operating framework.
The result, flexible average inflation targeting (FAIT), was explicitly asymmetric, aiming for average inflation of 2% “over time” but allowing for temporary overshoots “when inflation has been running
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