The last time the Fed reviewed its policymaking framework, they adopted a strategy which explicitly countenanced limited consumer price growth overshoots (versus the 2% target) in the context of persistent, undesirable disinflation.

The rationale was straightforward: Zealously snuffing out each and every inflation uptick, no matter how slight, when the recent history of underlying price growth is benign, runs the risk of establishing a disinflationary mindset among consumers, which in turn raises the risk of outright deflation in the presence of a growth shock. Deflation, once it’s embedded in consumer psychology, is famously difficult to dislodge.

It sounded like a good idea at the time. Well, not to everyone it didn’t, but it sounded good to the Ivory Tower crowd. But as (bad) luck would have it, the Fed’s adoption of so-called “flexible average inflation targeting” (FAIT) will forever be remembered as one of the more comedically ill-timed policy pivots in the history of macroeconomics.

This time five years ago, the Fed rubbed the lamp and asked the genie for an inflation overshoot. The genie delivered. Less than two years later, headline CPI was running 9% in the US.

All sorts of caveats are in order, of course. I won’t recap half a decade of macro-policy history here. Fast forward five years, and Jerome Powell issued some clarifications while presenting the results of the Fed’s most recent policy framework review.

The most important takeaway is this: The Fed never meant, Powell said, to suggest in 2020 that the Committee would forever refrain from raising the policy rate when the labor market’s doing well if policymakers judge that doing so’s necessary to ward off potential inflation.

The Fed still believes, he said Friday, that “in the absence of inflationary pressures, it might not be necessary to tighten policy based solely on uncertain real-time estimates of the natural rate of unemployment.” However, the 2020 policy review language wasn’t “intended as a commitment to permanently forswear preemption or to ignore labor market tightness,” he went on.

In other words: The Fed’s still ready and willing to entertain the idea that a labor market running hotter than estimates of NAIRU is sustainable without an unacceptable acceleration in consumer price growth, but they’ll be inclined to a more skeptical view of that assertion going forward.

Suffice to say the Phillips Curve made a bit of a comeback in 2025’s updated framework after being left for dead in 2020. As Powell put it, “preemptive action would likely be warranted if tightness in the labor market or other factors pose risks to price stability.”

Relatedly, Powell stated the obvious about monetary policy in the 2020s. The lower-bound’s no longer the main concern. And because the “makeup” strategy at the heart of FAIT was designed specifically to address issues that arise at the ELB, that strategy’s no longer relevant.

And so it was that Powell buried flexible average inflation targeting at Jackson Hole on Friday. “The idea of an intentional, moderate inflation overshoot had proved irrelevant,” he said, effectively acknowledging that the magnitude of the inflation shock already in the pipeline when FAIT was introduced meant the strategy was destined to go down in the annals of ignominy, even as no one realized it at the time. “There was nothing intentional or moderate about the inflation that arrived a few months after we announced our 2020 changes,” Powell conceded.

A rather bleak eulogy, to be sure. RIP FAIT. As it turns out, you were an accompli.