Bessent Sees Room for Future Revamp of Fed 2% Inflation Target
Treasury Secretary Scott Bessent backed the idea of reconsidering the Federal Reserve’s 2% inflation target once the US has sustainably brought price increases back down to that pace.
“Once we are back to 2 — which I think will be in sight — then we can have a discussion: Is it much smarter to have a range?” Bessent said in an interview on the All-In Podcast. “Once we re-anchor to the target, then we can talk about a range.”
The discussion could potentially be framed around a switch to 1.5% to 2.5% or 1% to 3%, Bessent suggested in the interview, which was posted on Dec. 22. “There is a very robust conversation” to be had, he said.
Fed policymakers in 2012 formally and publicly adopted the current 2% target, which is shared by many central banks around the world. Bessent said that the idea of “decimal-point certainty is just absurd.” But he said shifting the target at a time when inflation is running faster than that would risk giving the impression that “when you’re above a level, you’ll always fudge upward.”
The interview was recorded after the Dec. 18 release of the November consumer price index, which showed a 2.7% increase in the level from a year before. The Fed uses a separate gauge, the so-called PCE price index. The PCE climbed 2.8% over the 12 months to September, the most recent reading showed.
People ‘Hurting’
“It’s very difficult to re-anchor until you meet the target and maintain credibility,” Bessent said. He also acknowledged affordability concerns among households — angst that surfaced in off-cycle elections held in November that saw Republican losses.
The Treasury chief said that “we understand that the American people are hurting.” The price level “has gotten very high,” he said, blaming that surge on the Biden administration. Inflation is now “starting to roll down,” thanks in part to declines in rents that had — he argued — been driven up by a jump in undocumented immigrants.
While some economists said the most recent CPI report likely contained measurement issues thanks to federal staff being furloughed during the government shutdown of October and early November, Bessent said he thought “it was a pretty accurate number.” He said while some components, including energy, recorded an increase, observable real-time figures showed they’re coming down.
Source : Bloomberg.com
