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The Fed Can Avoid Pitfalls of an Average-Inflation Target
As the Federal Reserve rethinks how it carries out monetary policy, some observers fear that change could have unintended, and negative, consequences. One change the Fed is considering is clarifying that it will try to hit its target of 2% annual inflation on average, so that if inflation runs at 1% in one period, the Fed will aim for 3% inflation in the next period. I have argued that this change would have several advantages, such as increasing the predictability of the price level, but also has pitfalls that the Fed should take steps to avoid. In a recent column in the Wall Street Journal, James Mackintosh ... (full story)