Relax: the Fed isn’t about to catch fire or melt. This isn’t about that sort of warming. It’s about a different, more benign sort of Fed warming that my pals at the Mercatus Center claim to have discerned. Still, I don’t believe them. Call me a Fed warming skeptic if you like, but so far as I’m concerned, it’s all fake news.
Since Jay Powell announced the Fed’s new average inflation targeting (AIT) strategy last week, both Scott Sumner and David Beckworth have welcomed it as a step, albeit only a tenuous one, toward their own (and my) preferred policy of NGDP level targeting. Scott calls “average inflation targeting…a tiny step forward,” though one that will allow the Fed more discretion than a move to price-level targeting would. David likewise observes that, although it isn’t quite an NGDP level target, AIT “is a step in that direction.”
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