Central banks including the Federal Reserve may need to set higher inflation targets in the future to avoid dealing with low economic growth, Eric Rosengren, president of the Federal Reserve Bank of Boston, said in an interview with the Financial Times.
Rosengren said he wanted the Federal Open Market Committee to debate about whether the United States’ inflation target of 2 per cent was too low, the FT reported.
If inflation targets were set higher, it could mean a higher long-run policy rate, which would mean more room to cut interest rates before hitting the so-called “zero lower bound”, Rosengren, who does not have a vote on the Fed’s policy-setting committee this year, told FT.
The U.S. labor market needs to strengthen further and inflation needs to show signs of heading back up to 2 percent before the Federal Reserve will raise interest rates, Rosengren said in a speech in London last week.
The Fed set a 2 percent inflation target in 2012, under a dual mandate to seek maximum employment and price stability, a goal it has not hit since that year while its target rate has been at near-zero levels since 2008, the FT said.
Rosengren also said he expects first-quarter U.S. growth to be slower than the 2.2 percent recorded for the end of last year, the newspaper reported.
In a sign of an uptick in inflation, U.S. consumer prices increased for a second straight month in March on rising gasoline and housing costs.
Rosengren could not be reached for comments outside regular U.S. business hours.
Source: Reuters (Reporting by Ismail Shakil in Bengaluru; Editing by Anupama Dwivedi)