The Federal Open Market Committee has just announced that it has approved changes to its written policy strategy.
From the statement:
“The economy is always evolving, and the FOMC’s strategy for achieving its goals must adapt to meet the new challenges that arise,” said Federal Reserve Chair Jerome H. Powell. “Our revised statement reflects our appreciation for the benefits of a strong labor market, particularly for many in low- and moderate-income communities, and that a robust job market can be sustained without causing an unwelcome increase in inflation.”
Among the more significant changes to the framework document are:
In other words, the Fed is going to allow price inflation to “run hot,” really hot.
The Fed had a bizarre target of 2% price inflation in the first place. But as Former Fed ChairmanPaul Volcker has put it, there is no sound justification for any price inflation target.
“I puzzle at the rationale,” Volcker wrote in his memoir, Keeping At It: The Quest for Sound Money and Good Government, “A 2 percent target, or limit, was not in my textbook years ago. I know of no theoretical justification.”
But now the Fed is moving beyond this target to an “average inflation target.” This will mean the Fed will allow price inflation to run above 2% to average inflation out.
Hug your gold coins.
More detailed analysis in the EPJ Daily Alert.