Bernanke: May Be ‘Sensible’ to Set Minimum Inflation Rate

by Patrick Brennan

After the Federal Reserve shocked observers today by continuing its quantitative-easing program, intended to keep the economy growing and prevent inflation from falling, Ben Bernanke announced that he thinks it may make sense to modify the Federal Reserve’s inflation target – which is currently an annual rate of 2 percent — by adding an inflation “floor,” meaning the Federal Reserve would commit to do whatever is necessary to avoid inflation expectations falling below whatever number they picked.

The Fed announced in December 2012 that it would tolerate inflation running up to 2.5 percent, one-half a percent more than its “target” rate, until it would feel the need to tighten its policy by raising interest rates from zero, effectively setting a ceiling. But the central bank has been more concerned, of late, by inflation running too low rather than too high — it’s been running between 1 and 2 percent, almost never over 2.

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