Fed’s Williams says moderate inflation overshoot acts as guardrail

Fed’s Williams says moderate inflation overshoot acts as guardrail

© Reuters. John C. Williams, president and CEO of the Federal Reserve Bank of New York speaks to the Economic Club of New York in the Manhattan borough of New York

(Reuters) – The Federal Reserve’s new pledge to keep interest rates at zero until inflation is on track to “moderately” exceed 2% has come under fire for being overly vague and leaving too much up to U.S. central bankers’ judgment, but that’s exactly the point, a key author of the pledge said on Wednesday.

“Moderate isn’t a number…it’s a guardrail” against expectations that the Fed would tolerate very high or persistently high inflation, New York Fed President John Williams (NYSE:) said at a virtual conference held by the Hoover Institution. “It’s also about proportionality; if we are undershooting the target by a few tenths… then you are obviously thinking that that’s the proportionality that you are thinking about in terms of trying to get that balance of 2%, but it is specific to the circumstances,” and where the economy is.

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