Federal Reserve Reaffirms 2% Inflation Target, Ends "Makeup" Strategy in Policy Framework Overhaul

Jackson Hole, Wyoming – The Federal Reserve on Friday announced significant updates to its monetary policy framework, reaffirming its long-standing 2 percent inflation target while eliminating the "flexible average inflation targeting" (FAIT) approach adopted in 2020. Federal Reserve Chair Jerome Powell, speaking at the annual Jackson Hole economic symposium, detailed the changes, emphasizing a return to a more traditional flexible inflation targeting.

The previous 2020 framework had allowed for periods where inflation could moderately overshoot the 2 percent target to compensate for prior periods of undershooting. This "makeup strategy" was intended to ensure that inflation averaged 2 percent over time. However, the subsequent surge in inflation following the pandemic rendered this approach "irrelevant," according to Powell.

The updated statement from the Federal Open Market Committee (FOMC), effective August 22, 2025, explicitly states, "The Committee reaffirms its judgment that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory maximum employment and price stability mandates." This directly addresses concerns about the target's removal.

The shift also includes the removal of language concerning the "low-rate environment" and the "shortfalls" approach to employment, moving towards a more symmetric view of both employment and inflation deviations from targets. This signifies the Fed's intent to respond more dynamically to economic conditions, rather than aiming to make up for past deviations.

The announcement comes amidst ongoing public commentary on monetary policy. Anthony Pompliano, a prominent figure in the cryptocurrency space, stated on social media, > "More than 3 years ago I predicted the Fed would increase their inflation target rate. Today they did something even crazier — they completely removed a reference to any inflation target at all. The money printer is coming." His tweet, however, mischaracterizes the Fed's action, as the 2% target remains firmly in place.

Economists note that the framework revision reflects lessons learned from the post-pandemic inflationary environment. The changes aim to enhance the transparency and effectiveness of monetary policy by focusing on a robust strategy applicable across various economic conditions. The Fed's commitment to price stability and its dual mandate of maximum employment and stable prices remains central to its operational principles.