16 At our September Federal Open Market Committee (FOMC) meeting, we discussed options for mitigating ELB risks, including “makeup” strategies in which policymakers would promise to make up for past inflation shortfalls with a sustained accommodative stance of policy intended to generate higher future inflation. 17 Such strategies provide accommodation at the ELB by keeping the policy rate low for an extended period.
Makeup strategies may also help anchor inflation expectations more firmly at 2 percent than would a policy strategy that does not compensate for past inflation misses. But the benefits of makeup strategies depend importantly on the private sector’s understanding of them as well as the belief that future policymakers will follow through on promises to keep policy accommodative.