After so many years of hand-wringing over disappointing US economic growth, it is odd to hear prominent economists sounding the alarm about the mere possibility of inflation. If anything, we should want an economy in which a higher federal funds rate is warranted.
BERKELEY – Back in 1992, Lawrence H. Summers, then the chief economist at the World Bank, and I warned that pushing the US Federal Reserve’s annual inflation target down from 4% to 2% risked causing big problems. Not only was the 4% target not producing any discontent, but a 2% target would increase the risk of the Fed’s interest-rate policy hitting the zero lower bound.
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