Steven Englander, Columnist

The Fed Should Aim Higher Than 2% Inflation

How policy makers interpret the target is more important than whether they raise rates three or four times this year.

February 23, 2018 at 4:00 PM UTC

By Steven Englander

Steve Englander is the Global Head of G10 FX Research and of North America Strategy for Standard Chartered Bank.

What will the Fed say about inflation?
Photographer: Michael Nagle/Bloomberg

Provide news feedback or report an error

Site feedback:

Take our Survey

This article is for subscribers only.

The Federal Reserve will never admit to aiming for inflation above 2 percent, but that's probably what policy makers want. You'll know it when they start saying things like "the symmetric target remains 2 percent inflation, but we do not want to miss to the downside."

Saying you don't want to fall short of the 2 percent target is a way of saying you will be aiming higher. Imagine a perfect world where a central bank could hit its 2 percent inflation target each year with a standard deviation of 0.25 percent. Inflation would be below 2 percent half the time and above the other half. To guarantee that there is, say, only a 10 percent chance of being below 2 percent, officials would have to aim for about 2.3 percent.