{"id":59568,"date":"2021-09-29T05:51:51","date_gmt":"2021-09-29T10:51:51","guid":{"rendered":"https:\/\/olduvai.ca\/?p=59568"},"modified":"2021-09-29T05:51:51","modified_gmt":"2021-09-29T10:51:51","slug":"if-the-fed-cant-hit-its-inflation-target-why-not-just-move-the-goalposts","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=59568","title":{"rendered":"If the Fed Can\u2019t Hit It\u2019s Inflation Target, Why Not Just Move the Goalposts?"},"content":{"rendered":"

If the Fed Can\u2019t Hit It\u2019s Inflation Target, Why Not Just Move the Goalposts?<\/a><\/h3>\n
\"\"<\/a><\/div>\n

The Fed has\u00a0an inflation problem<\/a>.<\/p>\n

The CPI is running well above the mythical 2% target and there\u00a0isn\u2019t any sign that it will ease soon<\/a>. To deal with this problem, the central bank should tighten its monetary policy. But that would create a whole new problem, given that it\u00a0can\u2019t tighten in this economic environment<\/a>. So, what is a central banker to do?<\/p>\n

Well, if the Fed can\u2019t hit the target, how about just moving the target?<\/span><\/p>\n

That idea is apparently seriously being considered.<\/p>\n

In a\u00a0Wall Street Journal<\/em>\u00a0article, Greg Ip floated the idea.<\/p>\n

One strategy [Powell]\u2014or his successor\u2014should consider in that eventuality is to simply raise the target.\u201d<\/p><\/blockquote>\n

Ip buys into Keynesian economic voodoo and thinks straitjacketing the Fed with a 2% inflation target will hinder job creation.<\/p>\n

Why would higher inflation ever be a good thing? Economic theory says modestly higher, stable inflation should mean fewer and less severe recessions, and less need for exotic tools such as central-bank bond buying, which may inflate asset bubbles. More practically, if inflation ends up closer to 3% than 2% next year, raising the target would relieve the Fed of jacking up interest rates to get inflation down, destroying jobs in the process.\u201d<\/p><\/blockquote>\n

In a sense, the Fed has already raised the inflation target. Not so long ago, it was a hard 2% target. But the COVID-19 pandemic gave the Fed just the excuse it needed to move the inflation goalposts.<\/p>\n

Jerome Powell announced the shift to \u201caverage inflation targeting\u201d during his Jackson Hole speech in August 2020. In effect, the Fed will allow the CPI to run \u201cmoderately\u201d over 2% \u201cfor some time\u201d to balance out periods where it runs under that level.<\/p>\n

\u2026click on the above link to read the rest of the article\u2026<\/p>\n","protected":false},"excerpt":{"rendered":"

If the Fed Can\u2019t Hit It\u2019s Inflation Target, Why Not Just Move the Goalposts? The Fed has\u00a0an inflation problem. The CPI is running well above the mythical 2% target and there\u00a0isn\u2019t any sign that it will ease soon. To deal with this problem, the central bank should tighten its monetary policy. But that would create […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[1055,172,303,426,431,23123,31863,3650],"class_list":["post-59568","post","type-post","status-publish","format-standard","hentry","category-economics","tag-consumer-price-index","tag-cpi","tag-fed","tag-inflation","tag-interest-rates","tag-michael-maharrey","tag-monetary-policy-schiffgold","tag-us-federal-reserve"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/59568","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=59568"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/59568\/revisions"}],"predecessor-version":[{"id":59569,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/59568\/revisions\/59569"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=59568"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=59568"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=59568"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}