Janet Yellen is starting to warm to a policy the Fed once regarded as radical

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June 15, 2017 2:27 PM

Fed Chair Janet Yellen used to think raising the central bank's 2% inflation target was a bad idea. But she's evolving on the issue.

Federal Reserve Chair Janet Yellen arrives on the last day of a G7 of Finance ministers, in Bari, southern Italy, Saturday, May 13, 2017.

Federal Reserve Chair Janet Yellen had a surprising answer to the question of what she thought of a recent proposal by 22 prominent economists for the central bank to raise its 2% inflation target given the economy’s subdued recent track record: she didn’t knock it down.

That’s what she had normally done when asked about the prospect of raising the Fed’s inflation target. This time, she seemed downright open to the idea.

Here was Yellen in September 2015, in a footnote to a speech on “Inflation Dynamics and Monetary Policy” (emphasis ours):

At her press briefing June 14, Yellen was singing a different tune.

To which former Minneapolis Fed President Narayana Kocherlakota, one of the signatories of the "Rethink 2%" letter, responded:

That’s a big change of heart indeed, and one that could have significant long-term implications for Fed policy. A higher inflation target would mean the central bank can provide additional stimulus to the economy in a downturn, potentially helping to prevent slumps that are as deep as the Great Recession, which wiped out 9 million jobs and left financial and social scars many Americans are still nursing.

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