- By reducing the costs and risks of inflation, a good monetary rule increases productivity and, hence, promotes long-run economic growth. An average inflation target also works reasonably well in response to temporary real supply shocks.
- Inflation has surged over the last year and, despite reaffirming its commitment to a 2 percent average inflation target on paper, the Fed’s own projections reveal it has no intention of making up for its past mistakes.
- Its failure to course-correct risks unanchoring inflation expectations, leaving the Fed to choose between permanently higher inflation or temporarily higher unemployment.
For further details see:
Asymmetric Average Inflation Targeting And Expectations