The U.S. Federal Reserve should make it clear that it is just as keen to fight too-low inflation as too-high inflation, and should rewrite its long-run goals to reflect that commitment, a top Fed official said on Monday.
The Fed should also consider imposing a two-year deadline for meeting its 2-percent inflation goal, and be clear that financial stability is a factor in monetary policy decisions, Minneapolis Fed President Narayana Kocherlakota said in remarks prepared for delivery at the Economic Club of Marquette County in Michigan's Upper Peninsula. That said, he added, he does not see financial stability risks as a problem currently.
The Fed first embraced an overt 2-percent goal for inflation in January 2012 as part of a two-page statement on monetary policy strategy.
But despite buying more than $1 trillion in bonds since then to lower long-term borrowing costs and boost the economy, inflation has remained stubbornly below that goal.
Kocherlakota has said he believes the Fed should allow inflation to rise above 2 percent in order to bring down unemployment faster, and on Monday called for explicitly including that view in the Fed's policy framework as it revisits the strategy document in coming months.
Unemployment, now at 6.1 percent, could be as low as 5 percent without creating unwanted upward pressure on prices, Kocherlakota said.
"The time is right to consider sharpening the (Fed)'s statement of its objectives," Kocherlakota said.
Kocherlakota is among the most dovish of Fed policymakers, supporting added monetary stimulus at a time when the Fed is winding down its bond purchases and preparing for interest rate hikes next year.
On Monday he said he wants the Fed to consider price-level targeting, which could force the Fed to take more aggressive easing measures than the inflation rate target it currently uses.
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