Rethinking the Fed’s Framework: Lessons from the Post-Pandemic Inflation

Rethinking the Fed’s Framework: Lessons from the Post-Pandemic Inflation

Executive SummaryAccording to Federal Reserve Chair Jerome Powell, the Fed’s flexible average inflation targeting (FAIT) framework played no role in the post-pandemic inflation surge, and officials acted swiftly once inflation proved demand-driven. This paper shows Powell’s claims are not supported by the evidence. The rise in the price level was driven by a surge in nominal spending. Fed officials were slow to recognize the problem and waited s…