Working Paper Revision
Tempting FAIT: Flexible Average Inflation Targeting and the Post-COVID U.S. Inflation Surge
Abstract: In August 2020, the Federal Reserve adopted Flexible Average Inflation Targeting (FAIT), permitting inflation to temporarily exceed the 2% target. Using synthetic control methods, we estimate that FAIT raised headline CPI inflation by 1 percentage point and core CPI by 0.5 percentage points, relative to a no-FAIT-adoption counterfactual, with short-lived effects concentrated during the 2021 inflation surge. Short-term inflation expectations increased by 0.8 percentage points, while long-term expectations remained well anchored. Real economic effects were statistically insignificant. The combination of a moderate and transitory inflationary impact, well-anchored long-term expectations, and muted real effects is suggestive of monetary policy operating in a steeper post-pandemic Phillips curve environment in the New Keynesian model. These findings are robust to alternative specifications, including controls for global and fiscal conditions.
JEL Classification: E52; E58; E61; E65; C32; C54;
https://doi.org/10.24149/wp2511r1
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Bibliographic Information
Provider: Federal Reserve Bank of Dallas
Part of Series: Working Papers
Publication Date: 2026-06
Number: 2511
Related Works
- Working Paper Revision (2026-06) : You are here.
- Working Paper Original (2025-04-09) : Tempting FAIT: Flexible Average Inflation Targeting and the Post-COVID U.S. Inflation Surge