OSLO: The U.S Federal Reserve can be flexible with its inflation objective and there is a risk it would overshoot its goal, but this is not an issue as long as price growth remains below three percent, a top Fed official said on Friday.
Charles Evans, President of the Chicago Federal Reserve Bank, said the Fed should have symmetry around its 2 percent inflation objective, which should be seen as a target not a ceiling.
The Fed's current monetary policy "admits the possibility of overshooting our inflation objectives," Evans told a conference at the Norwegian central bank in Oslo.
"That's not a goal but it could a feature, in order to have accommodate conditions that support maximum employment, so that's really very helpful."
"We could even do this as long as inflation was below 3 pct because I think symmetry around inflation target is incredibly important," he added. The Fed targets inflation to be no more than a half a percentage point above its 2 percent long-term target.
Evans added that better than expected growth in U.S. gross domestic product between 2009 and 2010 could be attributed to "favourable forward guidance shocks".
While GDP growth from 2011 to 2013 fell short of forecasts because of "massive headwinds," Evans said it would have done even worse but for the Fed's promise to keep interest rates close to zero for an extended period.
Evans also said that "degrading" monetary policy by using it to fight financial instability would lead to inflation that is below the Fed's 2 percent target and to more resource slack.
indiatimes.com
Charles Evans, President of the Chicago Federal Reserve Bank, said the Fed should have symmetry around its 2 percent inflation objective, which should be seen as a target not a ceiling.
The Fed's current monetary policy "admits the possibility of overshooting our inflation objectives," Evans told a conference at the Norwegian central bank in Oslo.
"That's not a goal but it could a feature, in order to have accommodate conditions that support maximum employment, so that's really very helpful."
"We could even do this as long as inflation was below 3 pct because I think symmetry around inflation target is incredibly important," he added. The Fed targets inflation to be no more than a half a percentage point above its 2 percent long-term target.
Evans added that better than expected growth in U.S. gross domestic product between 2009 and 2010 could be attributed to "favourable forward guidance shocks".
While GDP growth from 2011 to 2013 fell short of forecasts because of "massive headwinds," Evans said it would have done even worse but for the Fed's promise to keep interest rates close to zero for an extended period.
Evans also said that "degrading" monetary policy by using it to fight financial instability would lead to inflation that is below the Fed's 2 percent target and to more resource slack.
indiatimes.com
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