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Key U.S. Democrat Warns Fed Off Inflation Target: FT

It would be a "terrible mistake" for the U.S. Federal Reserve to adopt any form of inflation target to guide policy, a senior Democratic lawmaker was quoted as telling the Financial Times.

Such a target "would come at the expense of equal consideration of the other main goal, that is employment," U.S. House of Representatives's Financial Services Committee Chairman Barney Frank said in an interview in the FT's Tuesday edition.

Fed Chairman Ben Bernanke "has a statutory mandate for stable prices and low unemployment. If you target one of them, and not the other, it seems to me that will inevitably be favored," he said.

Bernanke has implied adopting an inflation target to guide Fed policy, but some of his colleagues on the central bank's policy-setting committee fear this would restrict flexibility.

His predecessor, Alan Greenspan, always resisted such a target because it would limit his operational flexibility, Frank said. "I think Alan Greenspan was right not to do that in the 1990s," he told the newspaper.

Frank said he would not support even a flexible target "without equal attention to unemployment also." He agreed Bernanke and his colleagues probably had an implicit inflation
target in mind already, but warned it would be dangerous to make it explicit, the FT reported.

"I think when you make it more transparent you enhance its importance," Frank said. "No question he has something in his head. But when you make it public you lose flexibility."

The lawmaker looked determined to maintain his views. "I am always willing to talk to him (Bernanke)," he said. "But he is as likely to change my mind as I am to change his."

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