Today the Fed abandoned its previous forecast, which called for 2% inflation in 2018. Now they forecast that inflation will run below 2% in 2018, as it has for most of the past decade. I agree that it is likely that inflation will run below 2% in 2018. Nonetheless, I believe the Fed made a mistake by forecasting sub-2% inflation in 2018. Instead, the Fed should have changed its policy, so that it could continue to forecast inflation at 2% in 2018. This is what Lars Svensson means by "targeting the forecast." The Fed is like a ship captain that intends the ship to arrive in New York, forecasts the ship will arrive in Boston, and then refuses to turn the steering wheel enough to equate the geographic
Scott Sumner considers the following as important: Monetary Policy
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