How Much of an Overshoot?: The Federal Reserve formally adopted a 2 percent inflation target back in January of 2012.
Policymakers at the central bank amended their objective this year to clarify that they expect "symmetric errors" around the target; in other words there is the possibility of the central bank overshooting or undershooting its self-proclaimed goal on inflation. Despite this clarification, concerns about the Fed’s commitment to the target persist and have intensified following Fed Chair Janet Yellen's speech last month. Even before then, however, it was easy to see why such worries existed. The central bank began the process of policy “normalization,” first by ending quantitative easing and then by raising benchmark interest rates, even though inflation has fallen short of the Fed's self-proclaimed target every month since May of 2012.
This raises a simple question: Given consistently below-target inflation since the Fed adopted its target, how much, if any, overshooting might the Fed be willing to tolerate as the expansion continues? ... Continued at Bloomberg