Weighing the Fed’s monetary policy options

BlackRock
By June 7, 2019 07:54

Weighing the Fed’s monetary policy options

Elga assesses the options the Fed is considering during its monetary policy review. This is the third post in a series of blog posts on the Fed and inflation expectations.

The Federal Reserve is considering a monetary policy shift from its flexible inflation forecast targeting to one of several strategies known as make-up strategies. See my earlier blog posts on the reasons for this review and potential economic and market implications.

Make-up strategies explicitly require central banks to make up for past misses of their inflation target. Different make-up strategy monetary policy ideas have been proposed on the central bank conference circuit. These can mainly be divided between price level targeting (PLT), average inflation targeting (AIT) and temporary price level targeting (TPLT). All the strategies work essentially through the same mechanism: raising short-term inflation expectations above the target.

PLT, AIT and TPLT

PLT commits to make up any deviation from

BlackRock
By June 7, 2019 07:54

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