Highlights of the September 16, 2020 FOMC statement:
- Statement adopts nod to average inflation target
- Fed funds rate held in 0.00-0.25% range, as expected
- Overall financial conditions have improved in recent months
- Economic activity and employment have picked up in recent months but remain well below their levels at the beginning of the year
- Repeats that virus poses ' considerable risks' over the medium term
- Path of the economy will depend significantly on the course of the virus
- Repeats that it is committed to using full range of tools
- Vote was 8-2
The new language around average inflation targeting is this:
The Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent.
The two dissents are notable:
Voting against the action were Robert S. Kaplan, who expects that it will be appropriate to maintain the current target range until the Committee is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals as articulated in its new policy strategy statement, but prefers that the Committee retain greater policy rate flexibility beyond that point; and Neel Kashkari, who prefers that the Committee to indicate that it expects to maintain the current target range until core inflation has reached 2 percent on a sustained basis.
Kaplan doesn't want to tie the Fed's hands to low rates forever while Kashkari's dissent relates to targeting core inflation, which isn't the Fed's mandate.
