Atlanta Fed President Lockhart Endorses Explicit Inflation Target
An explicit inflation target would help the Federal Open Market Committee (FOMC) more clearly communicate its inflation objectives to the public, said Atlanta Fed President and Chief Executive Officer Dennis Lockhart in a June 7 speech.
Speaking in Charlotte, N.C., Lockhart noted that the FOMC's ultimate inflation objective can at times be clouded by the language it uses to explain its inflation forecasts. Many other central banks have addressed this tension by adopting an explicit inflation target, a step he said he favors.
Inflation a key factor, critical to Fed mandate
Although the FOMC would have to work out the finer details, there are two key principles around which an effective target should be built, Lockhart explained. First, the target should be stated in terms of overall inflation measures that "real people" experience, such as headline inflation, which includes items with volatile costs such as fuel and food. Second, the target should be achievable over a specific time frame. This time frame should be short enough to hold the central bank accountable for its performance yet long enough to allow time for monetary policy to work, he said.
Also, Lockhart said he didn't believe an appropriately constructed inflation target was in conflict with the FOMC's mandate to support employment because he sees low and stable inflation over the medium-term horizon as a fundamental that provides a base on which jobs can grow. Nor should the establishment of an inflation target prompt significant changes to the Fed's conduct of monetary policy, he said. Indeed, the FOMC has had a de facto inflation objective of 2 percent or slightly less for several years.
Economy's "lack of conviction" not uncommon during recovery
June 23, 2011