The irony is that when we first started talking
about inflation targeting, it was our insistence on that very flexibility that made people think we weren't serious.
The discussions
about their inflation target being symmetric indicate that the Feds are less concerned about the updraft from inflationary pressures than current market pricing.
Not exact matches
That would allow the central bank to take a break from raising interest rates because it could worry less
about missing its
inflation target.
I suggested this because there has been a sudden burst of doubt
about the efficacy of a 2 %
inflation target, which is effectively the industry standard.
So, if there's a lot of global slack, that will make them less concerned
about inflation pressures, but by then, if a lot of places are at relatively full employment and seeing
target inflation, that will make them want to make sure that we're not going into an overheating kind of mode.
Poloz was noncommittal
about specifics, but he said the findings could mean that the Bank of Canada might have to tolerate wider misses of its
inflation target.
«It's hard to understand why the BOJ is still cautious
about adopting a price - stability
target,» Kuroda wrote, eight years ago, before the central bank was strong - armed this year into adopting a binding
inflation target of 2 percent.
Well, the last time the Bank of Canada's mandate was renewed here's what it had to say
about the wonders of
inflation targeting:
«He's very optimistic
about the economy and he's optimistic they can hit the
inflation target,» said Ward McCarthy, chief financial economist at Jefferies.
This theory is why the Fed is thinking
about raising rates even as
inflation has consistently fallen below its 2 % annual
target, because the central bank believes it needs to get ahead of rising
inflation that a falling unemployment rate will cause.
During a Saturday session at the symposium, such a slump in expectations
about inflation and
about other aspects of the economy was cited as a central problem complicating central banks» efforts to reach
inflation targets and dimming prospects in Japan and Europe.
He said warning
about prices «might not be fashionable» give that
inflation has been below
target in recent years.
The Teacher Retirement System in Texas, which manages
about $ 132 billion for more than 1.4 million current employees and beneficiaries, reduced its
inflation rate assumption last month while reviewing its current investment
target rate.
My own view is that we should be cautious
about tightening policy further until we are confident
inflation is on track to achieve our
target.»
Speculation on further easing has been growing since Draghi's last press conference in October, when he expressed concern
about fresh risks to the economy from the slowdown in China and other emerging markets, and
about the stubborn refusal of
inflation to come back to its
targeted level of just under 2 %.
If Poloz was correct, and the media only care
about prices when they spike to absurd levels, then let me suggest that some us are
about to make up for it by working overtime to explain why the Bank of Canada wants to raise interest rates even though core
inflation is trending away from the two - per - cent
target.
The group wants the Fed to consider raising its
inflation target from 2 % and worry less
about containing prices until the core actually starts to heat.
December 2009 (1967 kb PDF file): The Q&A in this issue features seven questions
about political influence and the financial crisis (by Deniz Igan, Prachi Mishra, and Thierry Tressel); research summaries on «Credit Conditions and Recoveries from Financial Crises» (by Prakash Kannan) and «
Inflation Targeting in Emerging Economies» (by Turgut Kýþýnbay); the contents of the latest issue of IMF Staff Papers; a listing of visiting scholars at the IMF during October — December 2009; and listings of recent IMF Working Papers and Staff Position Notes
Given these positive surprises, and because monetary policy must be forward - looking to achieve our
inflation target, Governing Council's discussions focused on three main issues: first, the extent to which recent strength is signalling stronger economic momentum in Canada and globally; second, how heightened levels of uncertainty, particularly
about US tax and trade policies, should be incorporated in our outlook; and third, how much excess capacity the economy currently has, and the growth rate of potential output going forward.
The U.S.
inflation rate has averaged
about 1.7 per cent over the past year, compared with the Fed's
target of 2 per cent.
I don't think things will get better until the
inflation target is raised, at least there is an increasing number of influential people talking
about it.
That was part of our thinking in late 2013, when
inflation was running persistently below
target: we were concerned
about the downside risks to
inflation, but decided against easing policy further to avoid exacerbating growing household indebtedness and elevated house prices.
While a failure to maintain financial stability would ultimately impair our ability to achieve the
inflation target, it is generally understood that we should aim to get
inflation sustainably back to
target within
about two years.
It is time to think more boldly, especially
about the idea of
inflation targeting.
What
about the future of
inflation targeting?
Let's talk
about this last bit — the
inflation target — a bit more, though this conversation... Read more
Of course, if the Fed were truly concerned
about hitting, or better yet, exceeding its
inflation target, which is supposed to be an average, not a ceiling, they wouldn't be raising in the first place.
With
inflation sitting well below the Fed's 2 %
target and doubts
about China's economy prevalent (see article), a rise would have been an unnecessary risk.
First, as B&R show, the Fed has been missing their 2 percent
inflation target for
about four years running.
The flexible
inflation target served as a useful framework to think
about the Asian crisis.
Well the way we do that is we have a medium term
target for
inflation and we talk
about holding CPI
inflation to 2 to 3 per cent on average over time.
We should also not lose track of finding a historically valid
inflation target (not 2 %) What
about ways to combat
inflation without throttling growth?
The debate prior to this crisis can be (perhaps simplistically) characterised as between those who argued that an
inflation -
targeting central bank should care
about asset prices to the extent that they affected the forecasts of output and
inflation over the policy horizon, and those who argued that additional attention needed to be paid to asset prices and the possibility of credit imbalances.
In a letter dated April 24, Representative Alex Mooney (R - WV) wrote to Jerome Powell, Chairman of the Federal Reserve, and Steven Mnuchin, Secretary of the U.S. Treasury, raising concerns
about their formal policy to devalue the Federal Reserve Note (e.g. «
inflation targeting») and requesting information
about the United States» use -LSB-...]
The FOMC statement had a couple of positive comments on developments, but also contained language suggesting the Fed isn't
about to start pulling its hair out because the
inflation target is now in sight.
Total
inflation has been close to 2 per cent and is expected to dip to
about 1.7 per cent in the middle of the year before returning to near its
target.
First it implies that if the Fed is serious — as it should be —
about having a symmetric 2 percent
inflation target then its near term
target should be in excess of 2 percent.
The salient points are (I)
inflation is below
target and expected to remain well sub-
target for the next 5 10 20 and 30 years; (II) it has been well below
target and Fed forecasts for a decade suggesting great skepticism
about models that predict acceleration (iii) the 2 percent
target is supposed to be an average so
inflation should sometimes exceed it especially after a long shortfall (iv) if the 9th year of expansion with unemployment approaching 4 percent is not the time for above
target inflation when will that moment ever come?
All of the argument
about appropriate
inflation targeting in recent years has focused not on whether 2 percent is too high but on whether it is too low a
target.
Early on, we had some indication that she would be highly emphasizing the plight of the underemployed, for example, and also there were some chances she would think
about approaching the
inflation target from above rather than below, essentially delaying rates until it was clear that
inflation was above
target.
I think she still cares
about the underemployed, but I think she has shifted away from thinking we really should be seeing
inflation above
target before we move, and that makes her somewhat more conventional than we thought a year and a half ago.
Rather than stressing vigilance
about future inflationary risks, Fed policymakers re-iterated their view that core
inflation was likely to rise only gradually, eventually stabilizing around their 2 %
target level.
The Fed
targets inflation at
about 2 percent as a guard against deflation, which could drag down wages and spark another recession.
What's interesting
about this is that many of them have spent a long time ensuring that the means by which
inflation is calculated gets them closer to their
target.
I suspect, for reasons I will write
about in the next few days, that moving away from
inflation targeting to something like nominal gross domestic product - level
targeting would be a better idea.
But for today's discussion, I want to use the May projections as the basis for some remarks
about the nature of the
inflation target.
The US Federal Reserve (Fed) looks likely to tighten monetary policy further, as
inflation and unemployment move closer to its
targets — underlining the strength of the domestic economy — but, while awaiting more substance on policy initiatives, we remain cautious
about predictions of an end to the pattern of modest US growth seen in recent years.
I have talked
about this at length elsewhere, and I am sure that informed people are well acquainted with the current monetary policy regime in Australia, which is based on an
inflation target, an independent central bank and a floating exchange rate.
Many emerging countries could benefit from moving to this generic type of regime, and to help this process, we need a vigorous debate
about when to intervene (and, more importantly, when not to); what role interest rates and
inflation targets might play; and what additional measures might help to handle large and volatile capital flows.
As I am sure you know, Taylor rules are a simple formula which give a benchmark for the real short - term interest rate, conditional on the latest information
about output relative to estimated potential output and
inflation relative to the
target rate (and conditional on an assumption of a so - called «neutral» real interest rate).