The US Federal Reserve building in Washington DC (Image: Wikimedia/Jbarta)

Another neoliberal shibboleth has fallen, in one of the biggest developments in monetary policy in decades. Hard targeting of inflation -- long the obsession of the rugged individualists of the neoliberal right -- has been officially abandoned by the US Federal Reserve, in favour of an approach very similar to Australia's inflation targeting model.

Following an extended review, Federal Reserve chairman Jerome Powell has announced the Fed will no longer base monetary policy on a 2% inflation target, but seek inflation that averages 2% over time. It also adjusted its view of full employment to allow labour-market gains to reach more workers without triggering a tightening of monetary policy via a rise in interest rates.

The Fed has had a formal hard target since 2012 (after having an informal one since the 1990s) along with the Reserve Bank of NZ (1990), the Bank of England (1992) and the Bank of Canada (1991). In contrast, the Reserve Bank of Australia (RBA) starting referring to its (more relaxed) target in the early 1990s under then-treasurer Paul Keating. It was later formalised in an agreement with former Treasurer Peter Costello in 1996: the RBA aims for consumer price inflation between 2–3%, on average, over time.