Fed's Williams pushes new
approach to U.S. inflation goal
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[May 06, 2017]
NEW YORK (Reuters) - 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.
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San Francisco Federal Reserve President John Williams speaks to
Reuters in San Francisco, California, U.S. September 27, 2016.
"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
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
(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)
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