Following the Great Inflation of the 1970s and ‘80s, the Fed’s posture was one of constant vigilance against upward-moving prices. Officials, and economists generally, came to realize only slowly that inflation had grown less and less responsive to shocks and especially to declines in unemployment.

The Fed’s favorite measure of price pressures averaged a scant 1.3% in the five years through 2019, even as joblessness dropped to a half-century low.

Gradually, policy makers became more alarmed that inflation was, in fact, running too low -- to the point where it was robbing the Fed of its ability to fight recessions by keeping interest rates too close to zero even in good times.

The framework review was the Fed’s attempt to find new ways of lifting long-term inflation back to the 2% target.

In January of this year, the FOMC hadn’t quite finalized that review, so no official conclusions had yet been made nor official policy changes put in place. But a number of committee members made clear they wanted to do away with the old approach of always aiming to move inflation precisely to 2%, without regard to past misses.

Having undershot for so long, many now wanted to push inflation a bit above the long-run goal, seeking inflation that averaged 2% over time.

Aiming High
“It was more than tolerating inflation above target, it was actively setting policy to achieve outcomes higher than the target for a period of time,” said Michael Gapen, chief U.S. economist at Barclays Capital.

Within that context, it’s not surprising that the minutes reveal a preference to build an inflation threshold into the coming forward guidance.

“A number of participants spoke favorably of forward guidance tied to inflation outcomes that could possibly entail a modest temporary overshooting of the committee’s longer-run inflation goal,” the minutes read.

The record also went on to show that “various participants” stressed the importance of completing the framework review “in the near term” along with revising the Fed’s Statement on Longer-Run Goals and Monetary Policy Strategy. Officials have said that document would be altered to reflect the major conclusions of the review.