Feb. 21 (Bloomberg) -- Targeting a higher inflation rate was among the policy alternatives presented to Federal Reserve officials in December 2008 as they considered ways to shore up a teetering economy, transcripts of the session show.
Stephen Meyer, currently deputy director in the Fed Board’s Division of Monetary affairs, said “it would be helpful” if the Federal Open Market Committee adopted an inflation target, the transcripts released today show. He also said officials could “quickly cut to zero” the benchmark interest rate and raised the possibility of large-scale securities purchases to stimulate the economy.
The committee could “announce that it will seek to run a somewhat higher rate of inflation for a number of years than it will seek in the long run,” Meyer said. “Such a promise, if deemed credible, would stimulate real activity by raising inflation expectations and reducing medium- and long-term real interest rates.”
The panel didn’t adopt an inflation target at the meeting, though it specified a 2 percent goal later.
“Adopting what might be a de facto inflation target is a pretty big deal, and if we decide to do that, I would like to have some opportunity to consult with the Congress appropriately,” then-Fed Chairman Ben S. Bernanke said.
Fed policy makers decided to cut the benchmark lending rate to a range of zero to 0.25 percent at the December meeting and announced they were “evaluating” the potential benefits of longer-term Treasury securities purchases. The Fed Board in November had already ordered the purchase of agency debt and mortgage-backed securities.
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