Is the Fed's Inflation Target Symmetric?
I just got out of a press conference with Dennis Lockhart (Atlanta Fed president) and Charles Evans (Chicago Fed president). I can't say there was any real news, but I did manage to ask a question. After forgetting to introduce myself, and the organization I write for like everyone else did, I asked whether the 2% inflation target was truly symmetric. I noted that the projections from members of the FOMC looked more like a ceiling than a central point, and that the comments made by Dennis Lockhart in the previous session made me wonder if, in fact, he thought there were asymmetric costs to over and under-shooting. I also asked Lockhart in particular what he is so afraid of if the inflation rate goes up temporarily.
Both insisted that the target is symmetric. However, Lockhart said that we know much more about the effects of inflatio0n than deflation, and that preventing deflation was therefore job number one (which doesn't really answer the question). He didn't explain what he is so afraid of if inflation goes up, and I didn't have enough experience to realize I should follow up. Wish I had (I'll bea t the Atlanta Fed in two weeks, so maybe I'll get another chance)
Evans, while explicitly agreeing the target was symmetric, made comments that indicated that it may not be. He said the Fed has not done a very good job of communicating its tolerance around the 2 percent target, both up and down, and they need to improve. But if the target is really symmetric, simply saying that (along with the tolerable range) is all that is required. Talking separately about tolerance for over and under-shooting isn't needed.
Finally, in the session prior to the press conference featuring Evans and Lockhart (among others), Evans seemed to endorse NGDP targeting. He didn't use those words exactly, but toward the end of the session he did talk about the advantages that come with this approach to monetary policy. I took it as an endorsement, though he might object to characterizing it that way. I think he's around today, and if I see him again, I will ask directly. (However, before the press conference started we were chatting and I told him I had just tweeted "Evans just endorsed NGDP targeting." He didn't object, so make of that what you will).
Posted by Mark Thoma on Tuesday, May 1, 2012 at 12:06 PM in Economics, Fed Watch, Monetary Policy |
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