The Federal Reserve announced on Wednesday it is formally adopting an inflation target of 2 percent in an effort to keep long-term inflation expectations stable.
The news followed a two-day meeting of the central bank’s policy-setting committee and was accompanied by its first-ever release of policymakers’ projections on interest rates. There was speculation that the Fed would announce such a target, but some economists are concerned it will cause the central bank to favor one half of its dual policy mandate of promoting maximum employment and price stability. The Fed has less ability to directly control employment.
Earlier in the day, the Fed announced it was extending the time period in which it expects to keep its key interest rate at rock-bottom levels to late 2014.
Fed Chairman Ben Bernanke will hold a press conference at 2:15 p.m. to discuss the announcement.