An influential member of the Federal Reserve’s board of governors has called for the central bank to set temporary inflation targets above its current goal of 2 per cent, to make up for periods when inflation runs below target.
In remarks at the US Monetary Policy Forum in New York on Friday, Fed governor Lael Brainard referred to this policy as “flexible inflation averaging”.
The comments offer the clearest sign yet that the Fed intends to re-examine how its monetary policy committee approaches its inflation target, as it prepares to release conclusions from an 18-month policy review this summer.
“By committing to achieve inflation outcomes that average 2 per cent over time, the committee would make clear in advance that it would accommodate rather than offset modest upward pressures to inflation in what could be described as a process of opportunistic reflation,” she said.
“This approach will help move inflation expectations back to our 2 per cent objective, which is critical to preserve conventional policy space.”