The Federal Reserve announced a major policy shift this morning, saying that it is willing to allow inflation to run higher than normal in order to support the economy. The new policy of “average inflation targeting.” means it will allow inflation to run “moderately” above the Fed’s traditional 2% goal following periods when it has run below that objective. The practical impact of that is that interest rates are expected to stay low for a very long time. Though the markets have been euphoric already in anticipation of such a change they still reacted to the confirmation. The USD index is down 0.4% but USD is only down 0.2% against CAD. The Bank of Canada has already telegraphed that it will follow suit with the Fed’s policy change.
