September 21, 2020
St. Louis Fed President James Bullard discussed the Federal Open Market Committee’s flexible average inflation targeting approach and why he thinks inflation may move higher in the near term. He spoke during an appearance on “Bloomberg Daybreak: Australia.”
The new approach suggests that the FOMC will not be preemptive in raising interest rates to contain inflation when it is below target. Instead the FOMC will wait for inflation to come up to the 2% target and then exceed that for a while, Bullard explained. He said he thinks the ingredients are there for more inflation over the next year, including large fiscal deficits, a less aggressive central bank and rapid economic growth.
He also talked about there being less need for fiscal stimulus now than there might have seemed to be in July or August, the addition of “inclusive” in reference to Fed’s maximum employment goal in the FOMC’s policy framework document, and the FOMC’s balance sheet policy being in a good place right now.
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