On 27 Aug 2020, Fed Chairman Jerome Powell announced that "Flexible Inflation Targeting" would be put into practice. Rather than fixing inflation rate at its 2% target, the Fed will target an "average" of 2% inflation, which is to allow the inflation rate to be above 2% during specific periods.

a. What are the possible pros and cons of inflation targeting? (6 marks)

b. Why do you suppose the Fed made such a major policy shift? (Hint: the US economy was in a recession because of the Covid-19, to save the economy, the Fed had cut the interest rate to almost zero while launching some stimulus programmes.) (4 marks)