Fed Lael Brainard said the central might adopt a so called “opportunistic reflation” strategy to lift underlying inflation to 2% and underscore its commitment to the inflation mandate. Such a strategy would accept a slight overshoot the 2% inflation target for a while, even if it’s driven by import prices.
She said “suppose that an unexpected increase in core import price inflation drove overall inflation modestly above 2% for a couple of years… The Federal Reserve could use that opportunity to communicate that a mild overshooting of inflation is consistent with our goals and to align policy with that statement.”
On the current outlook, she noted “the emerging contours of today’s new normal are defined by low sensitivity of inflation to changes in labor market slack, a low long-term neutral rate of interest, and low underlying trend inflation.”
