The statement that settles it

Via Free Exchange, Brad Delong asks Ben Bernanke:

Why haven’t you adopted a 3% per year inflation target?

Important to note that this is regarding why the Fed hasn’t implemented more aggressive action regarding unemployment. His response:

The public’s understanding of the Federal Reserve’s commitment to price stability helps to anchor inflation expectations and enhances the effectiveness of monetary policy, thereby contributing to stability in both prices and economic activity. Indeed, the longer-run inflation expectations of households and businesses have remained very stable over recent years. The Federal Reserve has not followed the suggestion of some that it pursue a monetary policy strategy aimed at pushing up longer-run inflation expectations. In theory, such an approach could reduce real interest rates and so stimulate spending and output. However, that theoretical argument ignores the risk that such a policy could cause the public to lose confidence in the central bank’s willingness to resist further upward shifts in inflation, and so undermine the effectiveness of monetary policy going forward. The anchoring of inflation expectations is a hard-won success that has been achieved over the course of three decades, and this stability cannot be taken for granted. Therefore, the Federal Reserve’s policy actions as well as its communications have been aimed at keeping inflation expectations firmly anchored.

There you have it. The Fed prefers not to take any action regarding the long term unemployment that the U.S. economy faces ahead. My question would be, which public is Bernanke talking about? Surely not the unemployed. Hmm.


3 responses to “The statement that settles it

  1. Pingback: links for 2009-12-18 | Bailout and Financial Crisis News

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  3. Pingback: links for 2009-12-18 | TheTradingReport

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