Fed Vice Chair Richard Clarida explained that if monetary policy “seeks only to return inflation to 2 percent”, the policy will tend to generate inflation that averages less than 2%. That would in turn “tend to put persistent downward pressure on inflation expectations”.
To “achieve symmetric outcomes for inflation requires an asymmetric monetary policy reactions reaction function in a low r* world with binding ELB constraints in economic downturns,” he added. Hence, FOMC will no longer refers to 2% inflation goal as “symmetric”, but “averages 2% over time”.
He also said said forward guidance and large-scale asset purchases “have been and continue to be effective” with federal funds rate at effective lower bound. He reiterated that “we do not see negative rates as an attractive policy option”. Yield caps and targets were “not warranted” in the current environment.
