A Higher Inflation Target Is a Tired Old Idea

Jason Furman’s suggestion that the Fed should do it because other central banks are doing it reminds me of what I used to tell my parents

Letters to The WSJ. 

"Jason Furman’s suggestion to raise the Federal Reserve’s target inflation rate to 3% is nothing more than a variant of an idea proposed by Paul Samuelson and Robert Solow in 1960 (“The Fed Should Carefully Aim for a Higher Inflation Target,” op-ed, Aug. 21). Milton Friedman and Edmund Phelps independently demonstrated that the idea was economic nonsense.

Further, when Janet Yellen asked Alan Greenspan what was his optimal rate of inflation, he responded, “zero, if inflation is properly measured,” referring to the “inflation bias” in commonly used inflation measures that he believed was about 0.5%.

The suggestion that higher inflation will stimulate investment is economic nonsense because the higher inflation target will be reflected in higher borrowing rates.

Inflation hurts anyone whose income doesn’t increase in lockstep with the inflation rate—nearly everyone. Inflation especially harms those on fixed incomes and those whose incomes tend to rise slowly. The higher the inflation rate the greater the pain.

I also don’t understand why Mr. Furman believes that the Fed can hit a particular inflation target. Before the Covid-helicopter-money-drop inflation, the inflation rate was more often than not below the Fed’s 2% target despite historically easy monetary policy.

Finally, his suggestion that the Fed should do it because other central banks are doing it reminds me of what I used to tell my parents.

Dan Thornton

former vice president

Federal Reserve Bank of St. Louis

Des Peres, Mo.

If Mr. Furman did the compound interest math involved with this bad idea, he didn’t mention it. At 3% inflation, average prices would increase more than 10 times in a single lifetime, and a dollar would shrivel to less than nine cents. It seems certain that this is not what the American people want from the money government forces them to use.

As the great former Fed Chairman Paul Volcker warned in his autobiography about ideas to raise inflation targets to 3% or more, “The real danger comes from encouraging or inadvertently tolerating rising inflation and its close cousin of extreme speculation.” We would be wise to follow Volcker’s guidance here and reject Mr. Furman’s inflationist rationale.

Alex J. Pollock

Mises Institute

Lake Forest, Ill."