Is it time for Fed to raise interest rate target to 3%? Experts weigh in
Paul Krugman, the winner of the Nobel Memorial Prize in Economic Science, wrote on X (formerly Twitter) that he agreed with Jason Furman's call for a 3 per cent inflation target. However, he added that if the 3 per cent target is right, the war against inflation was already won. "I agree with Jason Furman's call for a 3 per cent inflation target — the rationale for 2 per cent has been overtaken by a couple of decades' experience (and many of us have been saying this for a while).
But I'm puzzled by his assertion that there's a lot of work still to do and that the hardest part may still lie ahead. Most measures of underlying inflation are currently sitting around. So if you think 3 per cent is the right target, shouldn't we be declaring victory? Or to put it a different way, if 2 per cent was a mistake, how many people should lose their jobs for a mistake?" Krugman wrote on X.
However, the debate has another side as well. Some experts believe that it would be futile for the Fed to raise inflation targets. The central bank's primary responsibility is to keep inflation under control while it also has the freedom to take a pause on rate hikes and tweak monetary policy if it feels growth is getting severely impacted.
G. Chokkalingam, Founder & Head of Research at Equinomics Research told Mint that raising the inflation target ultimately boils down to punishing the economy more severely in the short term or giving some lag in the long term. "This argument doesn’t make sense from two perspectives.
Though the inflation rate keeps a declining trend or remains constant, it remains in the positive zone most of the time. That would mean exponential growth in absolute price levels over the decades. It becomes imperative for the
. Read more on livemint.com
