The U.S. Federal Reserve adopted an inflation target in 2012. The Fed for a long time worried about price stability. Yet it took America’s central bank a couple of decades to catch up with what most of the rest of the world by adopting a firm target. Uniquely, the Fed also has a mandate to achieve “maximum” employment. Fed Chair Janet Yellen’s emphasis continues to be the latter—even though the U.S. unemployment rate is 4.9%, the lowest in eight years.
Little wonder then that there are doubts about whether the Fed really cares about hitting its bullseye of 2%. The central bank provided skeptics new talking points March 16 by opting to leave its benchmark rate unchanged at the ankle-high level of 0.25%. Narayana Kocherlakota, a former policy maker of recent vintage, accused his former colleagues of a lack of resolve. The economics team at RBC Capital Markets in New York said they were puzzled by much of what the Fed chief had to say on prices. “It seems Yellen is absolutely willing to let inflation run hot,” they said in a note for clients, even though she said the opposite when she met reporters after the decision.
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