by Thomas L. Hogan
The American Institute for Economic Research
In August, the Federal Reserve introduced its new monetary policy strategy of Average Inflation Targeting. This measure was expected to increase price inflation in the short run by raising the public’s expectations of higher prices in the future. Based on evidence from financial markets and even from the Fed’s own forecasts, it does not appear to have done so.
The reason the new policy has failed is that no one seems to trust the Fed to achieve its policy goals. There are, however, tools the Fed could use to improve its credibility and make its monetary policies more effective.
The new policy: Average Inflation Targeting
In 2012, the Fed officially adopted a target rate of 2 percent inflation. Since that time, however, rates of inflation have been consistently below the 2 percent target.