The dawn of average inflation targeting
Failure to explain how the Fed calculates its ‘average’ for AIT creates risks
The Federal Reserve became a monetary policy framework pioneer when chair Jerome Powell unveiled the US central bank’s move to average inflation targeting (AIT) on August 27. Powell said the Fed aimed to achieve an average inflation level of 2% “over time” and allow inflation to “moderately overshoot” its target after periods when inflation was below its 2% goal. The Fed – a latecomer in formally adopting a 2% inflation target after introducing it in 2012 (some 22 years after the Reserve Bank of
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