Fed Official Is Open to Adopting an Inflation Target Range
16 April 2019 - 10:29AM
Dow Jones News
By Michael S. Derby
The leader of the Federal Reserve Bank of Boston said he favors
the central bank moving from using interest-rate policy to achieve
2% inflation to a regime that targets a range of price pressures,
in remarks that also offer a positive view of the U.S. economy.
"It appears that the 2% inflation goal has essentially acted
more like a ceiling" for price rises, Boston Fed leader Eric
Rosengren said in the text of a speech to be presented Monday at
Davidson College in North Carolina. Mr. Rosengren noted that the
Fed's inflation target is supposed to view shortfalls and overages
in the same fashion, but it doesn't seem to have worked out that
way.
The Fed has targeted 2% inflation as a formal goal since 2012
but has yet to sustainably achieve it. It is now reviewing its
policy regime and is considering alternatives. Mr. Rosengren said
he thinks a range for the inflation target might work better.
"We might be forced to accept below-2% inflation during
recessions, but we would commit to achieving above-2% inflation in
good times, so as to provide more policy space to counteract the
next recession," Mr. Rosengren said in the prepared remarks. He
believes such a system would be easier to communicate than some
alternatives now under consideration.
Mr. Rosengren didn't offer any clues about his outlook for rates
in his speech. He is a voting member of the rate-setting Federal
Open Market Committee this year. The FOMC has pressed the pause
button on its rate-rising campaign and expects to keep rates steady
for the year. Low inflation is a factor pushing the central bank to
the sidelines.
"One reason for the policy committee's decision to be patient in
determining future rate adjustments, despite tight labor markets,
is waiting to see more convincing evidence that inflation will
achieve and sustain the 2% inflation target," Mr. Rosengren said in
the speech text.
"In many respects the economy is doing quite well, especially if
you're going by the Fed's dual mandate: stable prices and maximum
sustainable employment," Mr. Rosengren said in the text. The job
market remains "quite tight," he said, and wage increases "have
been trending up."
Mr. Rosengren also noted that while inflation has been falling
short of the Fed's target, "the miss relative to our target is
relatively modest."
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
April 15, 2019 20:14 ET (00:14 GMT)
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