Former Obama administration and Federal Reserve economists called on the central bank Friday to consider raising its 2 percent inflation target, suggesting that higher inflation might be needed to lower unemployment.
In a letter sent to Fed Chairwoman Janet Yellen, the officials called for a “serious reappraisal” of the Fed’s goals given the weak economic recovery and for the creation of a blue-ribbon panel to rethink the Fed’s monetary policy operations.
Three former Obama administration economists signed the letter: Jason Furman, Gene Sperling and Jared Bernstein. As members of the administration, the three were not allowed to comment on the Fed’s interest rate decisions and bond-buying programs when they were in office.
Narayana Kocherlakota, a University of Rochester economist who served as the president of the Federal Reserve Bank of Minneapolis during some of the biggest monetary policy debates of the Obama era, also signed on, as did others who have served at the Fed. The letter was published by the Campaign for Popular Democracy, an outside group that has lobbied the Fed to keep interest rates low.
The economists suggested that a higher rate of inflation might be warranted, when “the lack of evidence that moderately higher inflation would harm Americans’ standard of living is juxtaposed with the tremendous evidence that a tighter labor market would improve Americans’ standards of living.”
The Fed since 2012 has officially targeted 2 percent inflation over the long term, a decision that Yellen helped shape.
For nearly five years between spring 2012 and February however, inflation ran below 2 percent. The letter-writers suggested that officials at the central bank might view the 2 percent rate as a ceiling, rather than a target.
On Thursday, House Republicans passed a major financial regulatory overhaul package that included a provision to set up a commission to study the Fed’s performance since its creation in 1913 and propose alternatives to its conduct of monetary policy.
