, Columnist
What’s Wrong With the 2 Percent Inflation Target
False precision can lead to dangerous policies.
Monetary policy is more complicated.
Photographer: Robert Prezioso/Getty ImagesThis article is for subscribers only.
In 1996, Federal Reserve Chairman Alan Greenspan had an exchange with Janet Yellen, then a member of the Fed’s Board of Governors, that presaged a major — and, I think, ill-advised — change in the central bank’s approach to managing the economy.
Yellen asked Greenspan: “How do you define price stability?” He gave what I see as the only sensible answer: “That state in which expected changes in the general price level do not effectively alter business or household decisions.” Yellen persisted: “Could you please put a number on that?”