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The FOMC's 2% target is based on the headline personal consumption expenditures (PCE) price index. The FOMC has stated that "policy decisions must be informed by assessments of the shortfalls of employment from its maximum level."See the FOMC's "Statement on Longer-Run Goals and Monetary Policy Strategy" (PDF), adopted effective Jan. 24, 2012, and reaffirmed effective Jan. 31, 2023. June 01, 2023 Since mid-2021, inflation has been running well above the 2% target set by the Federal Open Market Committee (FOMC).The FOMC's 2% target is based on the headline personal consumption expenditures (PCE) price index. [Extracted from the article]

The Federal Reserve's mission is to promote a healthy economy and financial stability. Reflecting Tight or Loose Financial Conditions Other indexes are designed to be more reflective of tight or loose financial conditions, and hence, a tight or loose stance of monetary policy. Some Federal Reserve banks--such as the St. Louis Fed, the Kansas City Fed and the Chicago Fed--have their own indexes. [Extracted from the article]

I also discussed the potential need for the FOMC to move more aggressively if inflation increased or did not moderate as much as expected in a March 2, 2022, presentation on removing monetary policy accommodation. See my July 7, 2022, presentation on the FOMC's first steps toward disinflation in the U.S. In March, the FOMC raised the policy rate from its near-zero level. In November 2021, I wrote about the need for a risk management approach to monetary policy that entailed positioning monetary policy to account for scenarios in which inflation either moderated naturally or remained persistently above the Fed's 2% target. [Extracted from the article]

Headline PCE Inflation versus Headline CPI Inflation Other Inflation Measures: Core PCE, Core CPI and Dallas FedTrimmed Mean Related Topics * Inflation * Monetary Policy Targeting PCE Inflation Before 2000, the Federal Open Market Committee (FOMC)typically watched the CPI to gauge inflation. Other measures include the Cleveland Fed's median andtrimmed-mean CPI and the Atlanta Fed's sticky-price CPI. [Extracted from the article]

Consistent with the price stability part of that mandate, the Federal Open Market Committee (FOMC) has set an inflation target of 2%, as measured by the year-over-year percentage change in the price index for personal consumption expenditures (PCE). Furthermore, its forward guidance that additional policy rate increases are likely in coming months is a deliberate step to help the FOMC more quickly move policy as necessary to bring inflation back in line with the Fed's 2% target. The Federal Reserve has a mandate to promote stable prices for the U.S. economy as well as maximum employment. [Extracted from the article]

During the COVID-19 recession, the Federal Open Market Committee (FOMC) reduced the target range for the federal funds rate to near zero and began large purchases of U.S. Treasury securities and agency mortgage-backed securities. Moreover, inflation is running well above the 2% rate that the FOMC equates with price stability, and monetary policy has not been reset for these macroeconomic conditions. Next Steps for Monetary Policy The FOMC must now follow through with policy rate increases and balance sheet runoff. [Extracted from the article]