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Understanding the Fed’s Inflation Mandate and Why It Should Evolve
By Advisor Perspectives
Rick Rieder argues that the Fed’s price stability mandate has been fulfilled and that today’s drivers of inflation are being misunderstood. Ultimately, the Fed’s mandate should evolve away from inflation targets in favor of other measures.
In the U.S. today, despite the lowest levels of inflation volatility in the last 60 years, policy makers and market participants alike place an excessive focus on the Federal Reserve’s 2% inflation target, in our view. To understand how we’ve arrived here, we think it useful to provide context with a brief history of the Fed’s inflation mandate, and from there we take a fresh look at what we think are the true drivers of inflation. Finally, assessing the forward-looking balance of risks informs our view that the Fed should place greater emphasis on targeting other metrics, such as nominal GDP, which though an imperfect indicator of well-being, may be more indicative of overall economic health.
Read more at Advisor Perspectives.