The Fed’s flawed PCE inflation targeting regime

Inflation rate

The US Federal Reserve Board, following much deliberation, announced an explicit longer-run goal for inflation on January 25, bringing it belatedly into the fold of central bank inflation targeters. The vast majority of central banks now follow explicit inflation targets, with the European Central Bank, which follows an implicit target, still a notable exception.

The new target at the Fed is defined as 2% annual change in the price index for personal consumption expenditures (PCE) as opposed to

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