The Fed shouldn’t raise its inflation target

SOME people are suggesting that the Federal Reserve consider a compromise in its battle with rising prices: Instead of imposing the full monetary tightening required to get inflation back down to its 2 per cent target, why not increase the target a bit?

For the sake of the economy and its own credibility, I hope the Fed doesn’t listen.

The central bank last changed its inflation objective quite recently, in August 2020. Previously, the Fed had tried to hit the 2 per cent target at all times, regardless of past performance. Under its revised monetary policy framework, it would seek to achieve an average of 2 per cent. Past misses would no longer be treated as “bygones”, but instead offset by misses on the other side, to keep inflation expectations well anchored at 2 per cent.