Minutes from the Fed's September meeting showed broad-based support for the targeting of 'numerical thresholds' for unemployment going forward. Put simply, the Fed is looking to transition from interest rate signaling to the communication of its targets for economic outcomes such as the unemployment rate:
Most participants agreed that the use of numerical thresholds could be useful in providing more clarity about the conditionality of the forward guidance but thought that further work would be needed to address the related communications challenges. [Emphasis mine]
Additionally, CNBC notes that
...there was clear support for an approach favored by Chicago Federal Reserve Bank President Charles Evans, who has advocated allowing inflation to rise as high as 3 percent for as long as it takes to get the jobless rate below 7 percent. [Emphasis mine]
Those of a skeptical persuasion will note that justifying 3% inflation by referencing the elevated unemployment rate is a clever way of masking what is really going on. When the Fed stokes inflation it simultaneously helps the government pay down its debt. This is one component of a policy known as 'financial repression'. Of course if you believe the Fed is truly independent then this cannot be the case, as the Fed's actions would have no connection to the government's debt burden.
It is worth noting however, that not even the Fed believes the Fed is independent. On Thursday, St. Louis Fed chief James Bullard (who gets an FOMC vote next year) called the Fed's policy evidence of a 'partial default.' The idea is that as inflation rises, borrowers benefit because the amount they repay falls in real terms. Therefore, the deliberate attempt on the part of the Fed to drive up inflation could be viewed as a tacit admission of an inability to pay on the part of U.S. government.
Bullard notes that in the long-term this policy will backfire as investors will demand higher yields for government bonds to compensate them for the erosion of their purchasing power occasioned by previous inflationary policies:
Creditors would want to protect themselves against an unpredictable central bank.
Bullard goes on to remind listeners that in the interim period, it is savers who shoulder the burden of the government's inflation-assisted quasi-restructuring.
Ultimately, Bullard's sentiments echo those of other Fed critics who charge that the central bank's policies will eventually lead to sharply higher borrowing costs for the U.S. According to some, the situation will spiral out of control and 'burn Treasury bonds to a crisp'. The consensus seems to be that, to use Marc Faber's words, "It is dangerous to have ignorant people thinking they know something." Recommendation: Short U.S. Treasury bonds (TLT), bet against the dollar (UUP), and buy gold (GLD).