Fed Study Says Average Inflation May Be Better Way to Reach Goal

Average inflation targeting may be an effective tool in the current economic environment, where sluggish price increases have forced central banks to keep interest rates low, constraining the tools at their disposal in times of crisis, according to economists at the Federal Reserve Bank of San Francisco.

The tool is “a monetary policy framework that is well suited for the current environment,” economists Renuka Diwan, Sylvain Leduc and Thomas Mertens wrote in an Economic Letter, published Monday.