Does the Federal Reserve Want to Increase Inflation?
Janet Yellen, president of the San Francisco Federal Reserve, wants to see a bit more inflation than the Fed has been allowed in recent years. Rather than the historically low 1.5 percent target the Fed has recently hewed to, she wants a solid 2 percent. The Wall Street Journal explains:
Yellen worries that the world economy is becoming more volatile. After a quarter-century of relatively steady growth, it has now gone through a series of shocks. The Fed needs to be able to respond to those shocks with its standard tool — sharp interest rate cuts to stabilize growth. But if inflation is very low and thus interest rates are very low, that leaves it little room to operate when shocks hit. A slightly higher inflation would give it more room to operate.
In other words: Higher inflation would give the Federal Reserve more capacity to kickstart the economy by lowering interest rates. And the Fed worries that it'll have to kickstart the economy quite a bit in the coming years.
June 8, 2009; 10:36 AM ET
Categories: Federal Reserve , Solutions
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