The Fed Is Inching Closer to a NGDP Level Target
Eric S. Rosengren, president of the Federal Reserve Bank of Boston, said
that the Fed should again expand its holdings of mortgage bonds and
Treasury securities, and that the purchases should steadily continue
until the Fed was satisfied with the health of the economy.[...]
Mr. Rosengren’s proposal for new action would be a significant shift
from earlier rounds of asset purchases, when the Fed announced in
advance how much money it would spend and over what period of time. Mr.
Rosengren and other officials, including John C. Williams, president of
the Federal Reserve Bank of San Francisco, say that the focus instead
should be on results.
[...]
Mr. Rosengren said he did not have a firm view on what kind of measuring
stick the Fed should use for a new program of asset purchases. But he
suggested the Fed could target a minimum rate of nominal growth —
economic growth plus inflation — of 4.5 percent. The government
estimates the rate of nominal growth in the 2012 second quarter at 3.1
percent.
P.S. By adopting a NGDP level target the Fed would not unmoore long-term inflation expectations. A NGDP level target would, though, be solving an excess money demand problem created by a shortage of safe assets.
ht: dwb
2012-08-07 13:59:25
Source: http://macromarketmusings.blogspot.com/2012/08/the-fed-is-inching-closer-to-ngdp-level.html
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