There’s a New Way to Control Inflation
The San Francisco Fed president would let prices grow faster—sometimes.
The Federal Reserve would never get a medal in archery. Since January 2012, when it publicly adopted a target of 2 percent for annual inflation, it has undershot in 59 of 63 months. John Williams, president of the Federal Reserve Bank of San Francisco, believes there’s a way to help the institution improve its aim.
The Fed would still try to keep prices rising at 2 percent a year, but if it fell short one year, it wouldn’t just try harder to hit 2 percent the next year, as it does now. Instead, it would try to jack inflation above 2 percent temporarily to get back on track. The Fed would be like the driver of a car who makes up for getting stuck in traffic by speeding up—or slows down when she realizes she’s gotten ahead of her intended pace.