Afternoon Must-Read: Pedro Nicolaci da Costa: The Fed’s Lopsided Inflation Target

Pedro Nicolaci da Costa: The Fed’s Lopsided Inflation Target:

Is the Federal Reserve being cavalier about consistently undershooting its inflation target–and therefore compromising potentially stronger growth and job creation?… First and foremost, there is Boston Fed President Eric Rosengren, who dissented against the central bank’s decision in December to begin paring back the pace of its bond-buying stimulus by $10 billion to $75 billion per month. ‘I would prefer to wait until the economic improvement that I am forecasting is clearly evident in the data before reducing the size of the asset-purchase program. I think patience remains appropriate at this time’, he said, citing how far the Fed is falling short on both the inflation and employment sides of its dual mandate.

Other officials have expressed similar concerns, and the Fed statement itself cautions that ‘inflation persistently below its 2% objective could pose risks to economic performance’. The Fed has been missing its inflation target for much of the period much since the start of the financial crisis in mid-2007. In November, officials’ preferred inflation measure, the personal consumption expenditures index, stood at just 0.9%, under half policy makers’ stated 2% goal…