Comments from Fed Governor Brainard:

  • Says shifting Fed's target to communicate an average of 2% inflation over time would be simpler than stricter rules that commit to an outcome
  • She is concerned that trend inflation has slipped below 2% and that changes to the framework are needed to raise it
  • Says that in the next crisis the Fed should consider capping Treasury prates rather than relying on simple bond buying
  • Risk to the economic outlook remain to the downside but sentiment appears to be improving

This is an important shift. Average inflation targeting would mean the Fed keeps rates lower for longer to boost the average well-above 2% in order to balance out any misses to the downside.

It will be a long process to change the framework but this is a dollar-negative in the long run if it happens.

Quotable:

"Economic conditions in the euro area and elsewhere suffered for longer than necessary in part because of the lengthy process of building agreement to act decisively with a broader set of tools."