© 2018 by Robert Person.  The views expressed on this website are my own and do not represent the official policy of the U.S. Army, Department of Defense, or U.S. Government.

Apr 16

Fed Official Is Open to Adopting an Inflation Target Range

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Just today, the leader of the Federal Reserve Bank of Boston, Eric Rosengren, has publicized his acceptance of inflation exceeding the 2% inflation goal established in 2012. This goal has yet to be achieved and Eric Rosengren therefore believes that a range for the inflation target might work better. This range would allow Feds inflation target to view shortfalls and overages which the target has failed to do thus far while offering a positive view of the U.S. economy. Eric Rosengren also stated that by accepting an inflation rate above the 2% ceiling it would create more policy space to counteract the next recession. From his perspective, the economy is doing rather well when considering the trade off between stable prices and maximum employment. With continued success in the job market and the wage increases, Rosengren doesn’t view the Feds inability to meet the 2% inflation rate as a failure, but rather a minor setback.

 

This article directly applies to "Society and Monetary Affairs." Eric Rosengren’s support of increased inflation most closely resembles John Keynes’s “General Theory.” Keynes believes that by spending when others do not or by increasing the money supply to induce others to spend, the government could increase demand in the economy. In essence, by increasing the total demand in the economy, investments would rise, and unemployment would decrease. In theory, the use of macroeconomic policy to manage aggregate demand could allow the government to operate at full employment. However, if the Fed continues to implement the 2% inflation ceiling without allowing for flexibility, consumer prices could consistently fall due to the excessive productivity of the country and there would be no incentive for consumers to spend their money. A little bit of inflation is therefore not as bad as it may seem. Inflation can instead indicate that overall societal demand is increasing, indicating that money is moving throughout the economy. Despite Eric Rosengren’s support of this proposed inflation target, I am not so sure it will be well accepted by President Trump given his disapproval thus far. This increase in inflation could cause for price instability which could be disastrous for President Trump’s chances at reelection in the future. It is less likely that with an increase in inflation and price instability that President Trump will be able to gain the support of the upper class citizens.

 

Article found at: https://www.wsj.com/articles/fed-official-is-open-to-adopting-an-inflation-target-range-11555372800

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