Wednesday, October 24, 2012

Why Does Ben Bernanke Set a Specific Point Target for Inflation and Not a Range?

Because he thinks it is easier to hoodwink the public with a single target inflation rate than with a range.

In the book, Inflation Targeting, which is co-authored by Bernanke, point targets versus range targets are discussed:
With target ranges in place, politicians, financial markets and the public often focus on whether inflation is just outside or inside the edge of a range, rather than on the magnitude of deviation from the midpoint of the range. Furthermore, given the uncertainty of inflation forecasts, even with entirely appropriate policy in place, the inflation rate may fall outside the target range.

Missing an entire range may be perceived by the public as a more serious failure of policy than missing a point (which happens almost inevitably), leading to a possible loss of credibility for the inflation-targeting regime...The alternative to using a target range is to set a point target for is imperative that the public be made aware that, because of unavoidable uncertainties, even the best policies are unlikely to hold inflation consistently within a small tolerance around the point target...But, so long as the public believes the central bank's explanations, the bank has greater flexibility to cope with target misses without damaging its credibility.With a point target, success is no longer defined as hitting the target exactly...Rather it is defined as the bank's ability to keep inflation reasonably close to the target over long periods.

Currently, the Fed has a price inflation target of 2%. Expect price inflation to climb above this level and for Bernanke to do as it says in his book and jawbone that inflation above target is simply "because of unavoidable uncertainties."


  1. If the Federal Reserve was actually looking out for "the little people" it wouldn't need propaganda tools like this.

  2. Sounds like something Niccolò di Bernardo dei Machiavelli

    Further proof we have Central Bank crooks.