A Federal Reserve official has warned against abandoning the inflation target, stating that it would bring the economy back to the 1970s. The Fed's rate hike policy has received criticism from many quarters, but according to the official, giving up on inflation targets altogether would be a "disaster".
The Federal Reserve has set an inflation target of 2% as being most consistent with its mandate for "maximum employment and price stability." However, some have argued that this target is not achievable in today's economic environment.
Despite these concerns, the unnamed Fed official emphasized that abandoning this target could lead to catastrophic consequences. He stated that doing so would increase uncertainty and make it difficult to anchor expectations about future prices. This uncertainty could lead to rapid changes in interest rates and damage both households and businesses.
Furthermore, he explained that abandoning the inflation target could send a signal of weakness or lack of commitment from monetary policymakers. This signal could be interpreted by investors as a lack of ability or willingness by central banks to control prices effectively.
In conclusion, while there may be critics of the Fed's rate hike policy who believe it is harmful to economic growth, one thing remains clear: abandoning inflation targets altogether would pose significant risks for consumers and businesses alike. For now at least, maintaining an inflation goal appears necessary for achieving maximum employment and price stability over time.