Considerations for a Post-Pandemic Monetary Policy Framework

The Federal Reserve's 2020 strategic framework for monetary policy is sufficiently broad and flexible to face up to the wide-ranging challenges and uncertainties that are likely to emerge over the next many years. The 2020 revised framework addressed challenges that surfaced under the 2012 strategy and effective lower bound complications following the global financial crisis. Additions in the 2020 framework were intended to further anchor inflation expectations and preserve as much interest rate capacity to fight emerging recessions as a 2 percent inflation objective allows. I review the rationale for the inclusion of flexible average inflation targeting and refocusing on employment shortfalls. While the 2020 framework remains a sturdy foundation for monetary policymaking, I discuss implementation issues and suggest a few improvement opportunities that may help combat the challenges arising from the choice of a low 2 percent inflation objective.