Will the Fed’s New Approach Make Any Difference?
— September 9, 2020
By Mervyn King
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?
The difference between the old approach and the new can certainly be exaggerated. Before this change, most people, if asked whether the Fed was meeting its target of 2% inflation, would have looked at past inflation averaged over some period. In other words, the Fed’s accountability was already cast in terms of average inflation.
Read the full Bloomberg article.
Lord Mervyn King is the Alan Greenspan Professor of Economics and a professor of Economics and Law, a joint appointment with New York University School of Law.