4  BIS central bankers’ speeches  How should the FOMC respond to this shortfall in the price level? If the FOMC simply targets a 2 percent inflation rate after 2018, then the price level will be permanently 2.5 percent lower than was expected in 2012.
This approach to policy – which is the standard one followed by most leading central banks around the world – is called inflation targeting. But there is an alternative: The FOMC could target a slightly higher inflation rate for a few years after 2018 in order to make up for the shortfall in the price level.