With interest rates expected to remain low by historical standards, Federal Reserve Bank of Boston President Eric Rosengren said Wednesday, the Fed should consider ways to keep short-term interest rates from hitting zero.
One way to do that, he said, is to be more flexible “with the inflation target, perhaps focusing more on an inflation range than a specific number,” he said in a speech in Washington, D.C., according to prepared text released by the Fed. “One might allow the inflation target to rise within the range during periods of low real rates, thus providing more room for the funds rate to fall during an economic downturn.”
He added, “Such a change in the monetary policy framework is something that should be considered, along with a careful assessment of the potential costs and benefits. However, if the monetary policy framework is not changed, policymakers should look at other policy tools that can more effectively reduce the severity of recessions.”