Rest in peace, flexible average inflation targeting. The Fed raised interest rates by 0.75 percentage points, effectively killing Chair Jay Powell’s push to emphasize inclusive employment, writes GinaChon.
That has made the Fed’s newish framework, acronym FAIT, untenable. Back in 2020, Powell said that after years of inflation below the central bank’s 2% target, it would shift to a new flexible approach. Rates would be allowed to stay near zero, even if inflation went above 2% for a while, to make sure the economy was creating enough jobs for groups like Black workers, who are often the last to benefit from economic expansions and who weren’t considered separately in the old ways of rate-setting.
There may still be room for Powell to innovate – for example, revisiting the 2% inflation target. The Fed failed to hit that on the way up for years, but the, trade wars and Russia’s invasion of Ukraine may have permanently altered supply chains and spending patterns. The central bank’s June median projection for inflation this year is higher than in March at 5.2%. Even so, all newthink is best left until prices have found their level.The U.S.
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