Inflation - Needs to be stabilized at 2% - Fed Governor Jefferson

 

Fed Governor Jefferson gave an impact lecture last week at Harvard University not for breaking new ground or for providing new insights on policy, but for making the simple case of hitting the 2% target and reducing unanticipated inflation volatility. See "Recent Inflation and the Dual Mandate". 

He makes the simple case for why unanticipated higher or lower inflation is bad and that any inflation above the 2% target will have real effects that are negative on households and businesses. Governor Jefferson also tried to explain the difference in inflation signals from the PCE and CPI. This lecture was elegant for its simplicity; going back to square one and stating why the Fed engages in controlling inflation and keeping to its target. During all the rhetoric concerning rate increases, the dual mandate has been obscured. 

Perhaps this is lecture was fitting in Massachusetts the home of Senator Warren who has been arguing for a hold on what she considers Fed extremism. Increased inflation volatility distorts price signals and hurts consumers and businesses. Any inflation distorts economic behavior.