In a speech, Fed Vice Chair Richard Clarida outlined six features of the new framework adopted last fall.
- First, the lift off from the effective lower bound (ELB) interest rate was “delayed” until PCE inflation has risen to 2%, while other complementary conditions are met.
- Second, FOMC aims to achieve inflation moderately above 2% “for some time in the service of keeping longer-term inflation expectations well anchored at the 2 percent longer-run goal”.
- Third, monetary policy will “remain accommodative for some time after the conditions to commence policy normalization have been met.”
- Fourth, “policy will aim over time to return inflation to its longer-run goal, which remains 2 percent, but not below”.
- Fifth, inflation that averages 2 percent over time represents an ex ante aspiration of the FOMC, but not a time-inconsistent ex post commitment.
- Sixth, maximum employment is now defined as “the highest level of employment that does not generate sustained pressures that put the price-stability mandate at risk.”
