⁍ Federal Reserve policymakers on Friday began fleshing out what their new tolerance for inflation will mean in practice.

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⁍ The new policy pledges to keep interest rates near zero until inflation has hit the Fed’s 2% target and is on track ‘to moderately exceed’ it ‘for some time’
New economic projections released by the Fed this week show inflation only reaching 2% by the end of 2023.

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– The Federal Reserve’s pledge to keep interest rates near zero until inflation hits its 2% target and is “on track to moderately exceed” it “for some time” is a major change in Fed policy, but it’s not going to change the way investors think about the economy or interest rates, Reuters reports. According to the Wall Street Journal, Fed officials are divided on how to implement the new policy. Atlanta Fed President Raphael Bostic says he’ll be paying closer attention to how fast inflation rises rather than on its quarter-to-quarter level in implementing the new approach. If inflation goes up to 2.3% but appears stable “that would be fine,” he says. “By contrast if we were at 2.2 and the next quarter at 2.4 and then at 2.6, that trajectory would give me concern.” Minneapolis Fed President Neel Kashkari says the Fed is setting itself up to make the same mistake it has in the past of reacting too quickly to inflation “ghost stories” and risked nipping off job growth too soon. He says the Fed should instead focus on core inflation, a slower-moving variable that excludes volatile commodity prices, and ensure it reaches 2% on a “sustained basis.” Dallas Fed President Robert Kaplan says the Fed should keep its options open to raise rates sooner if needed.