With the Federal Reserve expected to raise interest rates Wednesday for the first time in nearly a decade, Professor of Economics Andrew Levin writes about the Fed’s next moves in a Wall Street Journal opinion piece.
“The Federal Reserve has issued numerous statements and projections on monetary policy in recent years, but it has made only one clear promise: to target an inflation rate of 2 percent,” writes Levin. “Since early 2012 Fed officials have emphasized this target as the anchor for inflation expectations, fostering the stability of inflation outcomes and enhancing the Fed’s ability to promote maximum employment.”
Now, he writes, “it is imperative for the Federal Reserve to reframe its policy strategy and shore up the credibility of its inflation target. A promising approach for doing so would be to deemphasize the role of inflation forecasts (which have been persistently wrong over the past few years) and, instead, to link the timing and pace of policy normalization to actual outcomes for inflation and employment.”
Read the full opinion piece, published 12/14/15 by The Wall Street Journal.