Powell Defends Inflation-Targeting Regime

Q: How and when does the Fed seek to achieve average 2% inflation, does the FOMC have a lookback period, and what is it?

• A: As part of our year and a half long review, with the new statement of longer run goals and monetary policy strategy, we looked carefully at the idea, we have all read the literature around different formulas for make up and things like that.
• I strongly agree that it's not wise to wed yourself to a particular formulation of that. We did adopt a discretionary, there is a element of discretion. It says that we will seek inflation that runs moderately above 2% for some time, and it's meant to create a broad sense that we want inflation to average 2% over time.
• But and that under the old formula, the old framework, what was happening was 2% was a ceiling, because all of the errors were below, you were always getting back to 2% so you were bouncing back and forth between one and a half and 2%. We wanted them to be centered around 2%. That is the approach we are taking.