No lion tamers at the Fed
David Beckworth directed me to a Bloomberg article discussing the Fed’s new policy approach:
Officials chewed over, but ultimately rejected, a slew of more daring proposals, from raising the inflation target to abandoning it for a nominal GDP target. They were also cautious in re-examining what they might do when rates hit zero.
They decided negative interest rates would be a bad option in the U.S. and haven’t warmed to the idea of capping the yields on some Treasury securities — known as yield-curve control — though they haven’t entirely ruled that one out.
In the end they see their current tools — bond purchases and communication on the future path of interest rates — as still the best options. Atop that they will add the important wrinkle that inflation should average close to 2% over time.
So no NGDP level targeting, not even price level targeting. It looks like average inflation targeting, which is pretty weak tea.
The shift, however, will only go so far. When the Fed articulates its new embrace of inflation averaging, officials likely won’t apply it in rule-like fashion, economists said, and may not even mention the word “average.”
That final sentence brought to mind a classic Monty Python routine.