Will government policymakers promote higher inflation to offset present risk of unemployment?
*Financial Times, by Krishna Guha , February 20, 2007
“It would be a “terrible mistake” for the Federal Reserve to adopt any form of inflation target to guide its interest rate decisions, Barney Frank, the Democratic chairman of the House financial services committee, has told the Financial Times.
Mr Frank, whose committee is one of two in Congress charged with oversight of the US central bank, said such a target “would come at the expense of equal consideration of the other main goal, that is employment”.
His comments come as Fed policymakers enter the later stages of a far-reaching strategy review that has included detailed debate over the merits of adopting an inflation target.
Ben Bernanke, chairman of the Fed, believes that the bank would be better off with a relatively flexible inflation target – one that would be achieved on average, rather than at a specific time horizon, giving maximum latitude to respond to output shocks.”
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