Central Banks

Wednesday, June 14, 2017 - 15:43

Yellen Excerpt: Still 'Highly Focused' on 2% Inflation


--Inflation Target One of the Most Important CenBank Questions

WASHINGTON (MN) - - The following is a response of Federal Reserve Chairman Janet Yellen to a question from a reporter at her press conference following Wednesday's Federal Open Market Committee meeting.

Question from Marketplace:

Recently a group of economists sent the Fed a letter earlier this month disagreeing with your 2 percent inflation target and saying they would like the economy to run a bit hotter. They don't think a labor market is so tight. You say you are committed to the 2 percent target. But what do you say to them?

Yellen:

So, at the time that we adopted the 2 percent target was back in 2012, we had a very thorough discussion of the factors that should determine what our inflation objective should be. I believe that was a well thought out decision. Now, at the moment, we are highly focused on trying to achieve our 2 percent objective, and we recognize the fact that inflation has been running below and it's essential for us to move inflation back to that objective. Now, we have learned a lot in the meantime. And assessments of the level of the neutral likely level currently and going forward of the neutral Federal funds rate have changed, and are quite a bit lower than they stood in 2012 or earlier years. That means that the economy is, has the potential where policy could be constrained by the zero lower bound more frequently than at the time that we adopted our 2 percent objective. So it's that recognition that causes people to think we might be better off with a higher inflation objective. That is an important set, this is one of our most critical decisions and one we are attentive to evidence and outside thinking. It's one that we will be reconsidering at some future time. And it's important for our decisions to be informed by a wide range of views and research, which is ongoing inside and outside the fed. But a reconsideration of that objective needs to take account not only of benefits of a higher potential benefits of a higher inflation target, but also the potential costs that could be associated with it. It needs to be a balanced assessment. But I would say that this is one of the most important questions facing monetary policy around the world in the future. And we very much look forward to seeing research by economists that will help inform our future decisions on this.

--MNI Washington Bureau; tel: +1 202-371-2121; email: denny.gulino@marketnews.com

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