The transcript shows that he said “zero” was the correct target if “inflation was measured correctly”. But it’s difficult to measure inflation accurately, as everyone in the room acknowledged. So Ms Yellen said: “Mismeasured, I think it would be a good idea to move towards 2 per cent inflation and that we should do so slowly, looking at what is happening along the way.”
That’s basically it.
Other Fed members concurred, and the 2 percent target was enshrined in Fed policy, albeit covertly. Mr. Greenspan didn’t want his hands tied. “I’m going to tell you that when the 2 percent inflation number goes out of this space, we’re going to cause us more problems than I think any of you could expect,” he said, according to the transcript.
Understand inflation and how it affects you
Back then, Mr. Greenspan and the Fed preferred a style of communication that even he described as opaque. When he testified before Congress in 1987, he was whimsical but accurate. “Since becoming a central banker, I’ve learned to mumble with great incoherence,” he said. “If I seem inappropriately clear to you, you must have misunderstood what I said.”
It was not until 2000 that the Fed began to publish regular “Forward Guidance” after its meetings and forecast where it expected the development of the economy and inflation to be. By now, Mr. Powell’s press conferences have become routine. But it’s worth remembering that it wasn’t until 2011, well into Ben S. Bernanke’s tenure as Fed Chair, that the Fed broke with Volcker and Greenspan’s tradition of extreme caution and held its first regular press briefing.
Finally, in 2012, it openly and formally embraced the 2 percent target and made it part of the Fed’s forward guidance practice. Come what may, in the long run the Fed would turn to its North Star, the 2 percent inflation target.
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2023-03-25 03:44:07
www.nytimes.com
