The Federal Open Market Committee’s decision to set a 2% explicit, numerical inflation target is “an important step forward” that could stop the nation from misreading the output gap and thereby avoiding a “looming disaster” caused by keeping rates near zero for too long, according to Federal Reserve Bank of St. Louis president and chief executive James Bullard.

“This is an important development, as it may prevent the U.S. from repeating the mistakes of the 1970s, in which a misreading of the size of the output gap led the Fed to maintain easy monetary policies for far too long,” Bullard told the Union League Club of Chicago, according to prepared text of the speech released by the Fed.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.