Fed chair Powell: To achieve inflation of 2%, need to see inflation average 2%

Author: Greg Michalowski | Category: Central Banks

Fed Powell speaking at Princeton

  • Fed not tied to a set formula for inflation target
  • To achieve inflation of 2% need to see inflation average 2%
  • Will tolerate inflation over 2% to get the average to 2%
  • flexible average inflation targeting means we have not tied ourselves to mathematical formula
  • we want inflation expectations while anchored at 2%
  • since we announced framework, there is evidence market participants have shifted expectations to be consistent with guidance
  • will need to see inflation rise above 2% for a time for a new framework to be credible to the public
  • Will not raise rates to ward off theoretical threats of inflation, imbalances.
  • In near term as pandemic recedes it could be exuberant spending, upward pressure on prices
  • One time rising prices won't mean persistent inflation
  • We are long way from maximum employment 
  • there is a shortage of demand globally
  • If inflation were to move up in ways that were unwelcome, Fed has tools for that and will use them

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