Fed Doesn’t Aim to Push Inflation Beyond 2%

02-Nov (WSJ) — Fed Chairwoman Janet Yellen set markets abuzz last month when she said running a “high-pressure economy” might help undo some of the economic damage wrought by the Great Recession.

Some investors wondered whether she meant the Fed was now seeking to push inflation above its 2% target. Her remarks came the same day Bank of England Gov. Mark Carney said the central bank was willing to let inflation temporarily overshoot its 2% goal to prevent the jobless rate from rising sharply, and three weeks after the Bank of Japan said it would aim to exceed its 2% inflation target.

But Ms. Yellen wasn’t suggesting the Fed follow suit, nor do the central bank’s projections imply a similar strategy.

She effectively expressed sympathy for the idea of letting short-term interest rates and the jobless rate stay low for a while to explore the costs and benefits to the economy. That would cause inflation to accelerate, but not rise above 2%, according to the Fed’s forecast. Inflation has run below that level for more than four years.

Her remarks reflect the debate Fed officials are having at their two-day meeting, which concludes Wednesday. They are likely to leave their benchmark federal-funds rate unchanged in a range between 0.25% and 0.5% and signal they could raise it next month.