Policy Rules Consistent with the FOMC’s Longer-Run Goals and Monetary Policy Strategy

Abstract

Abstract The Federal Open Market Committee’s revised Statement on Longer-Run Goals and Monetary Policy Strategy implements flexible average inflation targeting and mitigates shortfalls, rather than deviations, of employment from its maximum level. We show how the Taylor, balanced approach, and balanced approach (shortfalls) rules in the Monetary Policy Report could be modified to be consistent with the revised statement. Federal funds rate prescriptions from the consistent rules are both closer to the liftoff from the effective lower bound in December 2015 and provide a better fit to the actual federal funds rate than the rules currently included in the Report. The prescriptions from the balanced approach rules are closer to the liftoff and provide a better fit than the prescriptions from the Taylor rules.