A top Federal Reserve official suggested Friday that the central bank might exceed its inflation target in the next few years, a possibility that the Fed has declined to embrace.
Stanley Fischer, the vice chairman of the Fed’s Board of Governors, mentioned the prospect of overshooting the Fed’s inflation target at an event hosted by the International Monetary Fund in Washington.
Fischer mentioned that he was interested to learn whether the economy would become more productive as “we approach and perhaps to some extent exceed our employment and inflation targets.”
The Fed is targeting 2 percent inflation.
Inflation has run below that target since 2012, in the measure that the Fed prefers. Currently, it’s running at 1.2 percent annually.
Outside observers have questioned whether the target is really a ceiling, meaning that the Fed will raise interest rates and tighten money as soon as it appears that inflation will hit 2 percent.
That question has become all the more pressing in light of Yellen’s recent statements that it may be desirable to run a “high-pressure economy” — keeping money loose for longer to bring people at the margins of the workforce into jobs.
Yellen has declined to say the Fed might allow inflation to temporarily run above target. Some economists have questioned whether it would be possible to achieve the labor market goals Yellen hinted at without allowing higher inflation, at least to compensate for the past years’ below-target inflation.
At least one official within the Fed system, however, has endorsed the concept. In October, Federal Reserve Bank of Chicago Charles Evans said there might be “benefits” to overshooting the 2 percent target.
