Federal Reserve official Christopher Waller, in his assessment of inflation targeting, stated that setting a definitive target might be too rigid for monetary policy. Waller said he would prefer the inflation target to be set as a range rather than a single number, but that a change to the target at this stage could damage the Fed’s credibility.
Waller stated that he believes Federal Reserve Chairman Kevin Warsh’s recent remarks reaffirmed his commitment to the 2 percent inflation target. He added that Fed officials remain committed to the 2 percent target, which he sees as a credible commitment from the markets.
However, Waller noted that setting an inflation target as a range could be considered reasonable. He said that policymakers should discuss the issue if the response mechanism in monetary policy is not clear enough.
Waller also stressed that the Fed would not deliberately keep interest rates low in order to help the U.S. government finance its fiscal deficit.
Regarding the economic outlook, Waller stated that the labor market was beginning to stabilize. However, he noted that the balance of risk had shifted back towards inflation, thus conveying the message that the Fed was not deviating from its price stability target.
