Once the U.S. sustainably brings inflation back to the 2% level, policymakers could consider reassessing the Federal Reserve's current inflation target framework, potentially shifting from a single-point target to a range-based approach, according to U.S. Treasury Secretary Janet Yellen.
In a recent interview, Yellen stated, "When we return to 2%—and I believe this goal is now within sight—it would be appropriate to discuss whether setting a range might be more prudent. Re-anchoring expectations should precede any discussion about adjusting the target range."
She suggested potential adjustment options could include inflation target ranges of 1.5%–2.5% or 1%–3%, emphasizing there is "ample room for discussion" on this issue. However, Yellen cautioned that prematurely adjusting the target while inflation remains above the desired level risks sending markets the wrong signal that "targets will keep being revised upward if overshot," thereby undermining policy credibility.
The Fed formally adopted a 2% inflation target in 2012, which has since become a benchmark for many central banks globally. Yellen noted that excessive focus on "precision to one decimal place" may be unrealistic, though she acknowledged that re-anchoring inflation expectations would only be feasible after achieving and sustaining the target.
Data shows U.S. consumer prices rose 2.7% year-over-year in November, while the Fed's preferred gauge—the personal consumption expenditures price index—increased 2.8% in the 12 months through September.
Addressing public sentiment, Yellen admitted that re-anchoring expectations while missing targets is "very difficult" and recognized the strain high prices have placed on households, with discontent surfacing in some off-cycle November elections. "Americans are under pressure," she said, attributing earlier price surges to Biden administration policies while noting recent declines, particularly in housing costs, have helped ease inflation.
Responding to economists' concerns that recent CPI data might be skewed due to the October–early November government shutdown forcing statisticians on furlough, Yellen deemed the figures "reasonably accurate." She observed that while volatile components like energy persist, real-time indicators broadly point to cooling price trends.
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