The Fed doesn't have a lot of credibility
The Hoover conference on the weekend was seen as a dress rehearsal for a shift in the Fed's inflation strategy that would see them targeting average inflation rather than 2%.
In practice, it would be a huge difference. The aim would be to make up for misses on inflation to the downside by allowing inflation to run hotter later, and vice versa.
Many at the Fed -- led by NY Fed President Wiliams -- see it as a way to manage inflation expectations and act as a counter-cyclical balance.
The problem is that many economists just don't think the Fed will have the guts to allow inflation to run hot. The theme of the entire post-crisis era has been the FOMC acting and hiking too aggressively while never meeting the 2% inflation target. The problem comes down to forecasting and the Fed's constant overestimation of future inflation.
The ideas from the Fed are part of an in-depth framework review that will wrap up in H2 of 2020.
