Chart of the Week: Fed to probe alternative monetary policy strategies as inflation disappoints in many major economies

Next week the US Federal Reserve will hold a research conference in Chicago as part of its review into the objectives and the operation of monetary policy. Further meetings will be held with stakeholders over the coming months, with findings due to be communicated to the public in the first half of next year.

In recent years the widespread practice of targeting low rates of inflation has been found wanting. Our chart shows a long moving average of inflation in six inflation-targeting economies: the US, the euro area, the UK, Japan, Canada and New Zealand. Central Banks in each of these economies are charged with targeting an inflation rate of 2%. The UK is alone in having exceeded its target on average over the past ten years. Average inflation has drifted materially below target in the US, the euro area, Canada and New Zealand. In Japan, inflation has undershot the 2.0% target by some margin, and for many years. Some economists have blamed this recent tendency to undershoot on a fall in the neutral rate of interest. Some commentators believe that the Fed might soon switch to targeting average inflation over a period of time, rather than current inflation, in an attempt to correct this downward bias.

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The chart in this article has been created using Chartbook on Datastream. The Chartbook was initially created by Fathom Consulting in 2012 and is now a catalogue of approximately 9000 charts, covering over 170 countries, analysing up-to-date macro and financial data. Whether it is a particular topic, country or variable you are interested in charting, the Chartbook has everything you need. To access Chartbook via Datastream search ‘cbook’.