Powell Shifts to Average Inflation Targeting, Releases Longer Run Statement

The Fed chair's highly anticipated speech outlines the new "flexible" average inflation framework, necessary in a world where central banks have little policy space because neutral rates are so close to zero. The revised Longer-Run Goals Statement is also released.

• Fed will "likely aim to achieve inflation moderately above 2 percent for some time" following periods when inflation has been running below 2%.
• Policy decisions "will continue to reflect a broad array of considerations and will not be dictated by any formula."
• If "excessive inflation pressures" were to build or inflation expectations rise, "we would not hesitate to act."

The FOMC also refines its maximum employment goal.

• Policy decisions will be informed by ""assessments of the shortfalls of employment from its maximum level" rather than "deviations from its maximum level."
  
• The change "reflects our view that a robust job market can be sustained without causing an outbreak of inflation."
• Maximum employment is a "broad-based and inclusive goal."
  

Lastly, policy also will take into consideration financial stability risks to the outlook and review its framework every five years.

There is no mention of yield caps, QE or the current economic outlook.

FOMC_LongerRunGoals_guide.pdf