Asking the Fed to adjust its inflation target would be like waving a Pride flag at a DeSantis rally, Paul Krugman says

Nobel-winning economist Paul Krugman

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Paul Krugman has long been a critic of the Fed’s 2% inflation target, and suggests the goal be bumped up to 3%.
But central bankers’ reaction to such suggestions is similar to what “you’d get if you waved a Pride flag at a DeSantis rally,” he says.
In his New York Times op-ed, Krugman advocates for a 3% target and to declare victory over inflation for good.

The Federal Reserve has raised interest rates at the fastest pace since the 1980s over the past 16 months in a bid to cool inflation down to its self-imposed 2% target. 

But top economist Paul Krugman sees that goal for price stability as a mistake – and urges central bankers to swallow their pride and update the metric. 

“So if the 2 percent target was probably a mistake, and if we could do it over again, we’d probably go for 3, why not just declare victory over inflation today?” he wrote in an op-ed for the New York Times on Tuesday.

Krugman even took a jab at Florida governor Ron DeSantis to get his point across.

“OK, I’ve been in meetings with current and former central bankers, and the reaction you get if you suggest accepting current inflation and revising the target accordingly is more or less the reaction I imagine you’d get if you waved a Pride flag at a DeSantis rally (although you’re less likely to get beaten up or shot).”

It’s not the first time that Krugman has called for a 3% inflation target. Earlier this week, he made a case for the same in a post on X, citing a Wall Street Journal op-ed. 

“I agree with Jason Furman’s call for a 3% inflation target — the rationale for 2% has been overtaken by a couple of decades’ experience (and many of us have been saying this for a while),” he wrote.

But economist Mohamed El-Erian disagrees – warning there’s no chance the Fed will calibrate its inflation target, even though it’s a strong argument. “It is very hard for a central bank to change an inflation target when it has been missing it so consistently,” El-Erian told CNBC on Monday. 

“So yes, there’s a theoretical argument for a higher inflation target, but don’t look for chair Powell to touch that issue in any significant way,” he added.

The two economists’ comments come ahead of Fed chair Jerome Powell’s speech at the 2023 Jackson Hole Economic Symposium on Friday.

Read the original article on Business Insider


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