Economist Says Fed's 'Implicit Comfort Zone' for Inflation May Be Revised
The Federal Reserve’s implicit comfort zone for inflation is 1% to 2% on core inflation. Federal Reserve Chairman Ben Bernanke has declined to set a specific target, but some believe that may change soon.
“[A change] would just formalize the framework, and in some sense, remove the flexibility,” Julia Coronado, senior U.S. economist at Barclays Capital, told CNBC’s “Power Lunch” on Tuesday.
Bernanke "thinks that monetary policy should be more rules-based," she said, adding that the Fed "should set out some clear objectives, communicate very clearly what they’re thinking for the future and then set policy accordingly."
"It’s true that there is this implicit comfort zone between 1% and 2% on core inflation and recently we have heard more FOMC speakers talk more about headline inflation. I think that is an increasing worrisome element to the picture of overall inflation for the Fed.”
Core inflation excludes food and energy prices. Core inflation is less volatile and generally viewed as a better reflection of the mix of supply and demand in domestic markets. It is therefore generally seen as a better gauge of inflation for setting monetary policy.
But for the typical household, the headline, or the total inflation rate, is most important in determining the family budget.