The Fed’s Policy Shift to Let Inflation Rip Higher is Deeply Flawed

by Simon Constable
The American Institute for Economic Research

At the end of last month, Federal Reserve chairman Jerome Powell announced a shift in one of its decades-long policy goals. It’s a move that should worry investors and workers alike. Here’s what happened and why it’s a problem:

At the Fed’s annual Jackson Hole symposium, Powell said that instead of targeting an annualized inflation rate of 2%, the institution would allow the rise in the cost of living to go above that rate for long periods. The idea, Powell explained, was to take account of long periods when inflation had remained stubbornly below its target.

“The persistent undershoot of inflation from our 2 percent longer-run objective is a cause for concern,” Powell said. “[…] inflation that is persistently too low can pose serious risks to the economy.”

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