November 8, 2011 / 6:46 PM / 8 years ago

UPDATE 1-Plosser says Fed should target inflation, not jobs

PHILADELPHIA, Nov 8 (Reuters) - The Federal Reserve should focus on keeping inflation stable rather than try to push unemployment lower with unconventional policies that risk stoking higher prices, a top Fed official said on Tuesday.

Charles Plosser, the Philadelphia Fed president widely seen as an inflation hawk, argued that any attempt to juice economic activity by creating inflation was doomed to fail.

“Sometimes these arguments are opportunistically couched in terms of alternative policymaking frameworks, such as nominal GDP targeting, or price-level targeting. Regardless of the name, though, I believe the main motivation for many is to raise inflation,” said Plosser, who is taking part in a Fed subcommittee aimed at reviewing the central bank’s communications strategy.

Reiterating his long-standing call for an explicit inflation target of 2 percent, Plosser argued that, because employment is affected by factors outside the Fed’s control, it should not be the central bank’s direct purview.

“Achieving price stability is the most effective means for monetary policy to promote the other two goals” of maximum sustainable employment and moderate long-term interest rates, he said.

Plosser said the 2 percent target should be flexible, so that it can deviate from the stated goal but must be brought back in line within a time frame of two to three years, or less.

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