Many central banks throughout the world have adopted an explicit, numerical objective for inflation, commonly referred to as an inflation target. The US Federal Reserve is currently not one of them, but it is discussing this possibility. In the current circumstances with the economy in freefall, is it crazy for the Fed to move in this direction? Is an increased commitment to stabilising inflation the right thing to do when we are in the throes of a financial crisis and the economy is doing so poorly?
My answer is absolutely yes. Adopting an explicit, numerical inflation objective is exactly what is needed right now to help the US economy to recover.