Friday November 30, 4:00 pm Eastern Time
Fed's Poole advocates U.S. inflation targeting
PHILADELPHIA, Nov 30 (Reuters) - The U.S. Federal Reserve should adopt a specific inflation objective to make monetary policy more transparent, St. Louis Fed President William Poole said on Friday.
``The Fed could announce an explicit inflation objective, expressed either as a point target or a target range,'' Poole said in a speech prepared for a Philadelphia Fed forum. ``I have long believed that such a step would be useful.''
In recent months, several Fed officials have advocated the adoption of a U.S. inflation target to make monetary policy clearer and more predictable. But some economists think inflation targets are too constricting and reduce a central bank's flexibility to respond to various economic shocks.
Currently, inflation targeting is practiced by central banks in Canada and in Europe.
Poole also suggested the Fed's policymaking Federal Open Market Committee could alter its post-meeting statement to make it more simple and less open to interpretation by investors.
``The FOMC might consider reducing its end-of-meeting statement to relatively simple boilerplate language,'' Poole said.
``This suggestion may appear to be a step backward, but the issue is that the current statement is open to a variety of market interpretations, and the uncertainty about exactly what the statement means may not be helpful to the cause of clear communication,'' he said.
However, Poole, who has long argued the Fed should be transparent so financial markets can anticipate the central bank's interest-rate moves, said televising meetings would stifle open discussion and could cause confusion were the conversation to turn technical.
``Perhaps we shouldn't worry too much about this issue, as the audience for an FOMC meeting would probably be pretty small after a few such episodes,'' he said. ``I do not think we would compete very successfully with daytime television!''
Why is Poole raising this issue now?
The suggestion is no better than targeting anything but money. If labor unions demand and get compensation in excess of productivity causing upward pressure on prices, is FED going to raise rates? They will, but with a lag. How does introducing a target increase FED discipline or quickness of response? It won't and it can't because one can't be confident about the stability of the data. That's why we have free markets except in money. Poole wants another fixing mechanism. If this occurs, you do that. Some monetarist he is. More like an accommodator. |
