Since the early 1990s, inflation in the U.S. The FOMC decided at its September meeting that the best way to accomplish that goal was to keep the federal funds rate at its effective lower bound until both the inflation goal had nearly been reached and the FOMC's maximum employment goal had been reached. With inflation having been persistently below target in recent years, the Consensus Statement essentially obligated the Fed to aim for inflation moderately above 2 percent for some time. However, while the September FOMC statement is consistent with the Consensus Statement, it is by no means a necessary implication.
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This includes targeting inflation that is moderately above 2 percent for some time following periods when inflation has been running persistently below 2 percent.Ĭoming soon after the August update to the Consensus Statement, the September FOMC statement should be interpreted as adapting that modified strategy for the purposes of current policy. As discussed in detail in the Econ Focus article " The Fed's New Framework," the August update signified that the FOMC had revised its strategy regarding inflation: While the 2 percent inflation target remained, the committee moved from expressing concern if inflation were running persistently above or below target to aiming for inflation that averages 2 percent. 27 release of the FOMC's revised Statement on Longer-Run Goals and Monetary Policy Strategy ("Consensus Statement"). The September 2020 FOMC meeting was the first one to occur after the Aug. I acknowledge risks that commentators have raised regarding the statement and explain how the statement as a whole guards against those risks. In this Economic Brief, I contrast the policy described in the September FOMC statement to past Fed behavior and explain the rationale for the policy shift.
This was a major shift not just relative to July, but also relative to the FOMC's historical behavior.
By September, the committee expected to maintain that level until the economy had reached those goals and then some.In July, the committee had expected to keep the fed funds target at the effective lower bound until the economy was on track to achieve its goals.The shift in language represented a significant shift in the committee's thinking: After its September 2020 meeting, the Federal Open Market Committee (FOMC) released a statement noting that it expected to maintain its current target range for the federal funds rate "until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time." This was a notable departure from the previous FOMC meeting in July 2020, when the statement read, "The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals." The new language has been included in every FOMC meeting statement since September.