WASHINGTON (Reuters) – The Great Recession ended a decade ago this month, but for the U.S. Federal Reserve the fallout has posed an era-defining choice: Either jolt Americans to expect higher inflation, or keep the printing press ready for the next economic slide.
That politically fraught decision is the focus of a conference in Chicago this week to debate the risks and merits of two controversial strategies for thwarting a future downturn.
Sell - Convincing - Officials - Households - Prices
One is a hard sell: Convincing elected officials and households that higher prices today could produce more stable employment in the future.
The other would leave the Fed’s current approach to inflation intact but means the next recession will likely require the bondbuying and unconventional strategies used to combat the last one, with less certain results and a political cost for the Fed.
Outcomes - Adam - Posen - Head - Peterson
“They are facing two potential outcomes, both of which are difficult,” said Adam Posen, head of the Peterson Institute for International Economics and a moderator of one of the panels in Chicago. “The politically, but not economically, difficult one is that they manage to overshoot on inflation.”
“The bigger concern is that we go into the next recession and we don’t have ammo, you cut rates to zero and you do quantitative easing,” Posen said. “That is the nightmare.”
Chicago - Conference - Event - Series - Meetings
The Chicago conference is the central event in a yearlong series of meetings and research panels convened by Fed Chair Jerome Powell, who said he wanted to take advantage of a growing economy to review how the Fed tries to meet its twin goals of maximum employment and stable prices.
It is cast in technical terms as a review of the Fed’s operating “framework,” featuring many of the A-list economists and policy experts who often contribute to major Fed events.
Attention - Fed - % - Inflation - Target
Attention has centered on whether the Fed should make its 2% inflation target a...
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