Tags: Fed | Williams | Inflation | Goal

Fed's Williams Pushes New Approach to US Inflation Goal

Image: Fed's Williams Pushes New Approach to US Inflation Goal
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Friday, 05 May 2017 01:54 PM

One of the Federal Reserve's experts on navigating a world of low inflation and economic growth said on Friday the U.S. central bank should seriously consider ditching its old policy framework for a new approach to hitting its price-level goal.

In a speech, San Francisco Fed President John Williams did not comment specifically on interest rate hikes or on recent economic activity.

Instead he praised the advantages of a so-called price-level targeting regime over the Fed's current regime of a simple 2-percent target. The central bank's preferred inflation measure has been below this goal for some five years, though prices have recently edged higher.

"I believe that a price-level framework merits very serious consideration for central banks including the Fed," Williams, who does not vote on policy this year under a rotation, said in a speech to the hawkish-leaning Shadow Open Market Committee.

As it stands, the central bank sets rates to keep unemployment low and to also hit 2-percent inflation as much as possible, irrespective of how long prices have lingered below or above target. On the other hand, price-level targeting would oblige the Fed to make up for years of excessively low inflation by pushing it above target for a similar period, and vice-versa.

"Baked into its very design is a 'lower for longer' policy prescription in response to sustained low inflation," added Williams, who has floated a handful of new policy approaches over the last year including simply raising the inflation target.

Some economists and former Fed officials have also floated price-level targeting, though most central bankers say such a reform would provide little benefit and confuse investors and the public.

Williams, a former top advisor to Fed Chair Janet Yellen, has previously said he expects three or four rate hikes in 2017. The Fed has raised rates once so far this year.

© 2017 Thomson/Reuters. All rights reserved.

 
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One of the Federal Reserve's experts on navigating a world of low inflation and economic growth said on Friday the U.S. central bank should seriously consider ditching its old policy framework for a new approach to hitting its price-level goal.
Fed, Williams, Inflation, Goal
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2017-54-05
Friday, 05 May 2017 01:54 PM
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