Now That John Williams Is President of the New York Fed, He Really Should Convene a Blue Ribbon Commission on What the Inflation Target Should Be
From June 2017: Fed Up Rethink 2% Inflation Target Blue-Ribbon Commission Conference Call: I hear four arguments for not changing the 2%/year inflation target, even though pursuing that target found us in a situation where monetary policy was greatly hobbled in its ability to manage the economy for a solid decade. And, as best as I can evaluate them, all four of these arguments seem to me to be wrong. They are:
The Federal Reserve, even at the zero lower bound, has powerful tools sufficient to carry out its stabilization policy tasks….
The problem is not the 2%/year target but rather pressure on the Federal Reserve… from substantial numbers of economists and politicians practicing bad economics and motivated partisan reasoning….
A higher inflation rate would bring shifting expectations of inflation back into the mix, distract people and firms from their proper task of calculating real costs and benefits to worry about monetary policy, and make monetary policy management more complicated….
The Federal Reserve needs to maintain its credibility, and if it were to even once change the target inflation rate, its commitment to any target inflation rate would have no credibility….