Federal Reserve Board member Christopher Waller argued that the institution should adopt a target range of between 1.5% and 2.5% for inflation, instead of its current 2% target.
Waller stated that it is not realistic for central banks to steer inflation precisely towards a single number, adding that the current system can produce overly rigid conclusions in evaluating the success of monetary policy.
Waller stated that he prefers an inflation target range of between 1.5% and 2.5%, adding that measuring the success of monetary policy solely against a single 2% target can sometimes be misleading. According to Waller, a target range approach can better reflect fluctuations in the economy and the natural volatility in inflation data.
New calendar suggestion for dot charting
Waller also proposed changes to the timing of the release of the dot plots that show the Federal Reserve officials’ interest rate expectations.
Waller, noting that he could not speak on behalf of the entire Federal Open Market Committee, said that the median interest rate forecast shown in the dot plot provides important information to the markets. However, he stated that these forecasts might be delayed until the day after the meeting, rather than being released on the same day as the FOMC decisions.
It is thought that such a change could allow markets to focus first on the interest rate decision and the Fed Chairman’s statements, and then enable officials to make a more informed assessment of their individual interest rate forecasts.
High inflation data can be seen as a “signal”
Waller said that when evaluating the inflation data to be released this week, he would give more weight to a new high inflation figure than to a low one.
Waller pointed out that inflation data has been consistently high for the past five or six months, and that a new surge should not be considered a temporary fluctuation.
Waller said, “We’ve seen inflation figures consistently high for about five or six months. If we see another high figure, I would consider it a signal, not just noise.”
Waller stated that he would be cautious if inflation came in below expectations, adding that a single low figure might not be enough to confirm a trend reversal. The Fed member indicated that they might need one or two more months of data to determine if the decline in inflation is permanent.
Waller warned that another high figure for core inflation could force policymakers to consider raising interest rates soon.
*This is not investment advice.
