If you read about the Fed announcing results of an extensive policy review soon, please note that this was a project that long pre-dates COVID. It is my opinion that the project was embarked upon to find a rationalization for targeting “average inflation” rather than the current approach. Defining the inflation target as “an average over a period of time of 2 percent” vs. “the 2 percent level” allows the Fed to “run hot” at given times (i.e. run over 2 percent without violating its 2 percent target). Of course, the inflation rate is now below the Fed’s target, so it has no need (even within its existing) stated policy objectives to let its foot off the gas. However, preemptively stating its objective is “an average of 2 percent” would prepare the market for monetary policy to stay accommodative even when inflation escalates. I expect this review soon, and I expect to not be surprised by its findings.
Does it matter? Does it add to future inflation risks? To reiterate an argument I have made before about the 2020s . . . I am not convinced the Fed can create any inflation, regardless of the level it states is its objective.