The Risk in Changing the Fed’s 2% Inflation Target
Jason Furman argues “The Fed Should Carefully Aim for a Higher Inflation Target" (op-ed, Aug. 21). Why does the Federal Reserve mark 2% as the inflation line in the first place? Boosting it to 2.5% or 3% doesn’t appear to be such a serious departure.
For whatever reason, however, 2% inflation is the standard. Businesses plan their costs and product pricing based on it. Consumers factor it into their household budgets, and retirees figure the longevity of their nest eggs using it.
Adopting a different standard could upset apple carts throughout the economy. Unforeseen consequences could create more problems for the Fed, possibly ones that are less controllable by its levers. The Federal Reserve sees risk in declaring a new, higher inflation target, and it should.
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