Fed Official Is Open to Adopting an Inflation Target Range

Date : 04/16/2019 @ 1:29AM
Source : Dow Jones News

Fed Official Is Open to Adopting an Inflation Target Range

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)

Copyright (c) 2019 Dow Jones & Company, Inc.
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