The Fed does a quiet about-face on inflation : vimarsana.com

© UPI - Greg Nash
The Federal Reserve has broken with its previous approach to monetary policy to an extent that few people realize.
When the Fed announced its new monetary policy strategy in August 2020, the announcement failed to make much news. The new strategy appeared to involve minor tweaks: Moving from an inflation target of 2 percent to an “average inflation target” of 2 percent, and switching from focusing on “shortfalls” from maximum employment to focusing on “deviations” from maximum employment.
Initially, it was unclear to most economists that these seemingly minor changes were obscuring a significant reorientation of Fed policy. Months, and many speeches by Fed Chair Jerome Powell and other members of the Fed’s Federal Open Committee later, it has become clear that, in fact, the Fed has effectively jettisoned the approach that had guided monetary policy since the Great Inflation of the 1970s. That approach was grounded in the theoretical contributions of Milton Friedman and Edmund Phelps in the late 1960s and the U.S. experience with high inflation rates during the 1970s. Friedman and Phelps argued that any attempt by the Fed to drive the unemployment rate below a certain minimal level — called the natural rate of unemployment — would cause the inflation rate to accelerate. A corollary of this view was that because a change in monetary policy takes more than a year to have its full effect on the economy, if the Fed waited until inflation had already increased it would be too late to keep the higher inflation rate from becoming embedded in interest rates and long-term labor and raw material contracts.

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