That's a lot of words to say that they're going to allow inflation to go above 2%.
I guess the rest boils down to "don't panic, we're not getting crazy here."
I guess the rest boils down to "don't panic, we're not getting crazy here."
> The Federal Reserve took the historic step on Wednesday of setting an inflation target, a victory for Chairman Ben Bernanke that brings the Fed in line with many of the world’s other major central banks.
Source: https://www.reuters.com/article/us-usa-fed-inflation-target-...
Has Bernanke issued a mea culpa, yet?
> To date, we have chosen not to formulate explicit inflation targets, in part, out of concern that they could inhibit the effective pursuit of our goal.
https://www.federalreserve.gov/boarddocs/speeches/2005/20050...
And in 2001:
> A specific numerical inflation target would represent an unhelpful and false precision
https://www.nytimes.com/2001/10/12/business/greenspan-reject...
One of the arguments against inflation targeting, whether implicit or explicit, is that it invites asset bubbles--financial markets know that so long as the CPI[1] doesn't budge, they can go wild. But that's a somewhat different debate.
I think the basic argument against explicit targeting is that it hinders the Feds flexibility. With implicit targeting there's a degree of uncertainty and so markets arguably respond better to abrupt or unexpected changes; whereas with explicit targeting the Fed has to be more careful and gentle because markets will more heavily leverage against that fixed number.
[1] Or whatever measure they use; I don't know if it's CPI specifically.
> One of the arguments against inflation targeting, whether implicit or explicit, is that it invites asset bubbles--financial markets know that so long as the CPI[1] doesn't budge, they can go wild. But that's a somewhat different debate.
Basel III introduced a 'discretionary counter-cyclical buffer' on capital requirements to enable central banks to better manage asset bubbles, while still focusing on price stability with the cash rate.
> I think the basic argument against explicit targeting is that it hinders the Feds flexibility. With implicit targeting there's a degree of uncertainty and so markets arguably respond better to abrupt or unexpected changes; whereas with explicit targeting the Fed has to be more careful and gentle because markets will more heavily leverage against that fixed number.
Central banks strive to keep inflation at the target band on average, over the long term. It doesn't stop them from taking quick and decisive action in a crisis. A cursory study of the bank's actions (under Bernanke) at the outset of the GFC will affirm this.
https://en.wikipedia.org/wiki/Basel_III#Capital_requirements
* they are not reducing interest rates further below their current levels (although no mention of raising them anytime soon)
* they are going to use "other tools" to stimulate the economy (QE?)
We could see a huge run up of property values as people shift to taking advantage of real estate leverage and tax advantages coupled with literally free money.
What you may be referring to are the parameters of a "conforming" home mortgage loan.
https://en.wikipedia.org/wiki/Conforming_loan
Conforming loans are subsidized by the US federal government because the US federal government buys them and so funding for them is basically limitless.
Mortgage rates for conforming loans are a few points higher than fed rate. That’s cause the government owns the actual loan.