June 29, 2004

Fed Goal: 2% Inflation at 2.5% Fed Fund Rate. "Though Mr. Greenspan adamantly opposes setting any official inflation target, Fed officials have implicitly aimed to keep core inflation near 2 percent. That leads to the Fed's.. big concern: avoiding the kind of disruption that occurred in 1994, when the central bank decided to head off inflation by doubling the federal funds rate, to 6 percent, in a single year. Since early May, Mr. Greenspan and others have sought to reassure investors that the Fed could afford to raise interest rates at a "measured pace." That has been interpreted as a series of quarter-point increases that might bring the Fed funds rate to 2.5 percent by early next year from 1 percent today .. ". More "Up, Yes. But How Much, How Fast?".

Also: "J. Bradford DeLong .. said he thought inflation would remain low for some time because there were still large numbers of unemployed workers. The nation has one million fewer jobs today, he said, than it did when employment peaked four years ago. In addition, he said, the adult population in the United States has expanded by about 1.4 million a year over the last four years. "We are still five to six million jobs below where we should be," Mr. DeLong said, even if one assumes that many adults will choose not to work. "We are still very short of reaching potential output."" Posted by Greg Ransom | TrackBack