Assessments

What to Make of the U.S. Fed's New Approach to Inflation

Michael Monderer
Senior Analyst for Global Economics, Stratfor
Sep 2, 2020 | 11:00 GMT
A view looking up at the U.S. Federal Reserve building in Washington D.C. on July 1, 2020.

A view looking up at the U.S. Federal Reserve building in Washington D.C. on July 1, 2020.

(DANIEL SLIM/AFP via Getty Images)

The U.S. Federal Reserve's switch from inflation targeting to inflation averaging confirms it will keep interest rates near zero for a prolonged period, even if prices begin to rise. This will not have an immediate impact on monetary policy given extended shortfalls from targets by both the Fed and other major central banks. But the move may pressure the European Central Bank (ECB) and others to also adopt new approaches to inflation and employment. It will likely result in a somewhat weaker U.S. dollar for a longer time as well, which will come as relatively good news for emerging markets barring another shift in global risk aversion. ...

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