is appalled, rightly, at Ben Bernanke’s response to a question from Brad DeLong, who asked why the Fed hasn’t raised its inflation target:
The Federal Reserve has not followed the suggestion of some that it pursue a monetary policy strategy aimed at pushing up longer-run inflation expectations. In theory, such an approach could reduce real interest rates and so stimulate spending and output. However, that theoretical argument ignores the risk that such a policy could cause the public to lose confidence in the central bank’s willingness to resist further upward shifts in inflation, and so undermine the effectiveness of monetary policy going forward.
Let’s parse this.
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