The fate of FAIT: Salvaging the Fed's framework

David Beckworth and Patrick J. Horan

Southern Economic Journal, 2025, vol. 91, issue 4, 1391-1403

Abstract: The Federal Reserve's transition to a flexible average inflation targeting (FAIT) framework in 2020 has come under intense scrutiny, given its failure to prevent the recent inflation surge. These developments are the result of both a public misunderstanding about how FAIT works and the challenges created by the asymmetric design of the framework. As a result, some observers have called on the Federal Reserve to abandon FAIT and return to its previous framework. This paper, however, argues that FAIT should not be abandoned but improved upon by applying symmetry to its makeup policy and treatment of supply shocks. Doing so would give FAIT the properties of a nominal GDP‐level target. This paper calls this proposed framework FAIT‐N and shows how to operationalize it using a measure called the NGDP gap.

Date: 2025
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https://doi.org/10.1002/soej.12724

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Persistent link: https://EconPapers.repec.org/RePEc:wly:soecon:v:91:y:2025:i:4:p:1391-1403

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