• The Federal Reserve has officially abandoned its 2020 Flexible Average Inflation Targeting (FAIT) framework, marking a significant policy reversal.
  • Chair Jerome Powell stated the "makeup" strategy proved irrelevant in practice, especially after post-pandemic inflation surged unexpectedly.
  • The central bank is returning to a more conventional flexible inflation targeting approach, prioritizing well-anchored inflation expectations and forceful action to maintain price stability.

In a decisive move that signals a return to more traditional monetary policy, Federal Reserve Chair Jerome Powell announced the central bank is formally discarding the Flexible Average Inflation Targeting framework adopted in 2020. The announcement, made on August 22, 2025, represents a stark admission that the experimental policy proved unworkable in the face of the post-pandemic inflation surge that caught policymakers off guard.

"The 'makeup' strategy proved irrelevant in practice," Powell stated, referring to the FAIT framework's core tenet of intentionally overshooting the 2% target to compensate for periods of below-target inflation. The Fed now explicitly prioritizes keeping inflation expectations well-anchored and acting forcefully to maintain price stability, a shift back toward a more conventional and predictable approach.

This strategic pivot comes after a lengthy internal review and a series of Fed Listens events that gathered input from various stakeholders. People familiar with the matter noted that the review process revealed broad concern over the inflationary hardship experienced by households, particularly those with lower and middle incomes who were disproportionately affected. The new framework is expected to reduce uncertainty about how the Fed will respond to future inflation fluctuations, reinforcing its commitment to keeping inflation stable and close to its 2% target.

The abandonment of FAIT echoes past precedents in Fed history, such as the move away from monetary aggregates targeting in the early 1980s, where real-world challenges forced a major framework revision. Market participants largely anticipated this shift, viewing it as a logical response to lessons learned from the pandemic era. The move brings the Fed more in line with other major central banks, including the ECB and Bank of England, which have similarly moved away from experimental strategies as global inflation pressures have eased. A spokesperson for the Fed declined to comment beyond Powell's prepared remarks when reached for additional clarification.