Fed Considers Inflation Target

Federal Reserve officials recently discussed the pros and cons of creating a numerical target for inflation but opted to defer further talks amid a diversity of opinion.

“Meeting participants uniformly agreed that price stability provided the best environment for maximizing sustainable economic growth in the long run, but expressed a range of views on whether it would be helpful ... to articulate a specific numerical definition,” the central bank said in minutes released Wednesday of its Feb. 1-2 policy committee meeting.

Many central banks around the globe set monetary policy according to specific numerical targets, or target ranges, for desired inflation. The Fed, however, has two congressionally mandated goals -- price stability and full employment -- neither of which is defined with numbers.

Proponents of a numerical target believe that if businesses and the public understand the Fed’s inflation aims, their wage bargaining and price setting will reflect that and help the central bank achieve its goals. They also say such targets could help the Fed lock in the inflation-fighting credibility earned under Chairman Alan Greenspan.

Opponents worry that a target could limit policy flexibility and put too much of a focus on inflation to the detriment of the Fed’s full-employment goal.