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Macro Musings with David Beckworth
Charlie Evans on the Past, Present, and Future of U.S. Monetary Policy
Dec 11, 2023
Charles Evans, former president and CEO of the Chicago Fed, discusses his work on US monetary policy. Topics include the creation of the Evans rule, the current path of R-Star, and the future of the Fed's framework. They also explore the importance of the explicit 2% inflation target and propose nominal GDP targeting as a solution for supply-side driven inflation.
01:03:01
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Quick takeaways
- Explicit 2% inflation target provided clarity and transparency, anchoring inflation expectations.
- Transition to larger balance sheet and asset purchases stabilized economy and required shift in operating system.
Deep dives
Importance of Explicit Inflation Target
The explicit 2% inflation target adopted in 2012 was a significant development in anchoring inflation expectations. It provided clarity and transparency in the Fed's objective, ensuring that inflation variability does not influence economic decision-making. By making the target explicit, it helped shape monetary policy decisions and provided guidance to market participants. The commitment to a specific numerical target, combined with an emphasis on symmetry, has proven effective in maintaining inflation expectations and guiding policy actions.
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