August 25, 2017
This point is worth mentioning in the context of a comment by Esther L. George, president of the Federal Reserve Bank of Kansas City, to CNBC yesterday. Ms. George said:
“While we haven’t hit 2 percent, I’m reminded that 2 percent is a target over the long term, and in the context of a growing economy, of jobs being added, I don’t think it’s an issue that we should be particularly concerned about unless we see something change.”
Actually, the Fed’s stated policy is that 2 percent is a target as a long-term average. This means that the periods of below 2 percent inflation should be roughly offset by periods of above 2 percent inflation.
Most forecasts show the inflation rate remaining under 2 percent for at least the near term future. At some point, the economy will have another recession, during which the inflation rate is almost certain to fall. This means that if the inflation rate is just reaching 2.0 percent at the point the economy enters a recession, the Fed will have seriously undershot its stated target.
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