This morning's Wall Street Journal brings a report from Greg Ip (on page A2 of the print edition), asking the following question:
If Policy Makers Opt For a Target,
Should It Be Hard or 'Soft'?
For the most part, the plot of the article was revealed in the minutes of the Federal Open Market Committee's meetings held on October 24-25:
The Committee then continued its discussion of communication issues and considered the advantages and disadvantages of quantifying an inflation objective. Participants stressed that any such step had to be consistent with the statutory objectives for monetary policy. In that regard, it was noted that over time price stability is a prerequisite for maximum employment and moderate long-term interest rates. However, the possible specification of a numerical price objective raised a number of complex and interrelated issues that required considerable further discussion. The Committee reached no decisions on these issues at this meeting, and participants agreed to continue the Committee's review of communication issues at its meeting in January 2007.
Nothing in the Ip article seems inconsistent with that statement, but this one passage did catch my eye:
Fed officials say one form of implicit targeting would be to extend the horizon of the Fed's economic forecasts beyond the current two years, with the inflation forecast for the last year of the period representing the Fed's implicit target. Another would be to poll all 19 FOMC members on their personal definition of price stability and publish the resulting range, rather than forcing them to agree on a single number or range...
That may make it sound like there is something like a "Fed forecast" -- and you may then be wondering why you don't know about it. But later in the article Greg makes clear that those forecasts are really nothing more than a "poll" of FOMC meeting participants in the first place:
One way to minimize both problems would be for the FOMC, rather than announcing a target, to lengthen its current semiannual forecast -- a range of forecasts by individual FOMC members -- to three or four years from the current two. Because that would ordinarily be long enough for the Fed's interest-rate actions to achieve any inflation rate the central bank desired, the fourth-year forecast could be construed as a target without being called one.
I added the emphasis. It's a small point, but in the interest of transparency its good to be perfectly clear about such things.