Thursday, September 24, 2015

Targeting inflation of over 2 percent

We're not trying to push the inflation rate above 2. It's always our objective to get back to 2. But 2% is not a ceiling. And if it were a ceiling, you would have to be conducting a policy that on average would hold the inflation rate below 2%. That is not our policy. We want to see the inflation rate get back to 2% as rapidly as we can.

But there are lags in the impact of money on the policy of our economy. And if we waited until inflation is back to two and that would probably mean that unemployment had declined well below our estimates of the natural rate and only then did we start to begin to -- you know the word tighten monetary policy I don't think is really right because we have an immensely accommodative monetary policy in place. 

So let me say just to begin to diminish the extraordinary degree of accommodation for monetary policy, we would be over-- we would likely overshoot substantially our 2% objective. And we might be faced within having to tighten policy in a way that could be disruptive to the real economy. And I don't think that's a desirable way to conduct policy.