Add Federal Reserve Bank of San Francisco president Janet Yellen to the FOMC "aye" category for setting an explicit numerical inflation objective. In a speech yesterday, President Yellen indicated
Although I have some sympathy with the con arguments, on balance, I generally favor increased transparency and think the benefits of establishing a numerical objective are likely to outweigh the costs.
Echoing sentiments articulated by the Richmond Fed's Jeff Lacker on Tuesday, Yellen argues
... a numerical objective might anchor inflation expectations, help with communication about likely future policy actions, and also provide greater clarity for Committee deliberations.
What would her target be? Here's a pretty good hint.
In my judgment, inflation is now at a level consistent with price stability.
President Yellen also provided her worry list, full of the usual suspects: The trade deficit, oil prices, the sustainability of productivity growth, low private saving rates. And attracting some attention was this concern about fiscal policy:
In principle, it is appropriate for fiscal policy to stimulate demand during a recession, when private sector spending is sluggish. However, the policy went well beyond these desirable countercyclical effects. The tax cuts have mushroomed the deficit for the long term at a time when the baby-boomers are becoming golden-agers and when the costs of retirement programs are set to soar... Conventional economic analysis suggest that this situation is likely to raise long-term interest rates, crowd-out business capital investment, depress productivity growth, and exacerbate the current account deficit.
No mincing words there.