Greg Ip provides the following information in today's Wall Street Journal:
As Federal Reserve officials prepare to raise interest rates to keep inflation from rising, they are grappling anew with an old question: Should they aim for a specific number.
On the agenda for next week's two-day meeting of Fed policy makers is a discussion of whether the Fed should set a numerical objective for inflation and, if so, what it should be, according to people familiar with the matter. The Fed ponders such long-term topics twice a year, and no formal decision is likely. Nor is an explicit, public inflation target on the table.
I wasn't aware that the agenda for FOMC meetings had become public information in advance, and it is completely inappropriate for any Federal Reserve official to comment one way or another on whether what Ip says is accurate. In any event, the minutes will be out soon enough, and at that point we will all find out how good his sources are.
That aside, it is no secret that Fed governors and presidents have been batting around this topic for quite awhile, and Ip does provide a nice summary of the positions, starting with my boss.
At 1.5% by the Fed's preferred measure, inflation is now "roughly consistent with a working definition of price stability," Federal Reserve Bank of Cleveland President Sandra Pianalto said last week, expressing a view shared by most of her colleagues on the 19-member Federal Open Market Committee, the central bank's policy panel.
I added the link. (One small point of order. Strictly speaking, the Federal Open Market Committee consists of the voting members in a particular year, represented by the seven governors and five of the district bank presidents. More accurately, the 19-member group is referred to as FOMC meeting participants.)
Ip goes on to run down the range of opinions that have been staked out by the various players.
FOMC members who have advocated a numerical objective or target have offered varying ranges. Governor Ben Bernanke has said 1% to 2%. Governor Ed Gramlich has suggested 1% to 2.5%. Philadelphia Fed President Anthony Santomero last October proposed 1% to 3%, and St. Louis Fed President William Poole advocates a target of zero, with some allowance for measurement error.
And the pros and cons:
Advocates believe a target would enable investors to better predict how the Fed will respond to changing economic circumstances and solidify its commitment to price stability under Mr. Greenspan's successor next year.
But opponents, who include governors Roger Ferguson and Donald Kohn, fret that targets would confer an obligation to change interest rates whenever inflation deviated from the target, even if unemployment or financial stability called for different actions.
It's an interesting article, worth tracking down to read the whole thing.