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Feds Discuss Inflation and Rates
Thursday, April 30, 2015 6:35 AM

The Federal Reserve’s policy-making committee is meeting in Washington, and officials are expected to discuss how much longer the central bank should hold its benchmark rate near zero, as it has done since December 2008. Officials had planned to start raising rates between June and September, but growth has fallen short of the Fed’s expectations this year, which could delay the liftoff.

Inflation has mostly remained well below the 2 percent target since the global economic downturn. The Fed’s preferred measure, published by the Bureau of Economic Analysis, rose just 1.4 percent during the 12 months ending in February.

The cardinal rule of central banking, in the United States and in most other advanced industrial nations, is that annual inflation should run around 2 percent.

Higher inflation could disrupt economic activity, but it also would enhance the Fed’s power to stimulate the economy during recessions. Some experts say the struggles of the Fed and other central banks to provide enough stimulus since the Great Recession suggest they could use more room for maneuvering.

So, as the Federal Reserve prepares to start raising its benchmark interest rate later this year, it is facing persistent questions about the wisdom of the rule and the possible benefits of significantly increasing its target.

There is little prospect that any major central bank will raise its inflation target in the foreseeable future. Two percent is a global standard and the official line is that it was carefully chosen, and that the stability of the target is a virtue in its own right.

 

Source:  The New York Times, 28 April 2015