WASHINGTON, Jan. 18 (Xinhua) -- A senior U.S. Federal Reserve official said on Thursday that the central bank should review its inflation target of 2 percent as part of an assessment of its tools for fighting the next recession.
While there was no imminent threat of an economic recession, it would be "prudent monetary policymaking" to put the central bank's method of managing the economy on the agenda this year, Bill Dudley, president of the Federal Reserve Bank of New York, said in an interview with Financial Times.
Dudley, who will retire this summer, said he was in favor of reviewing the Fed's recession-fighting tools, including the 2 percent inflation target set in 2012. Many economists are worried that the target might leave the central bank little room to cut interest rates if another recession comes, falling back to the so-called zero lower bound.
Dudley suggested the Fed could consider moving to an inflation target range of 1.5 to 2.5 percent, or shifting to a price-level target. But he was against lifting the inflation target to 4 per cent from 2 per cent, as such a high target could fall foul of Congress' s requirement that the Fed pursues price stability, according to the newspaper.
Dudley also said the added stimulus from 1.5-trillion-U.S. dollar tax cuts, approved by Congress last month, raised the risk that the U.S. economy could overheat in 2019 or 2020 as rising inflation fails to stop at 2 percent.
That would force the Fed to sharply tighten monetary policy, but the central bank has a "poor" record for engineering a soft landing when the unemployment rate has gone too low, he said.
U.S. unemployment rate stayed at 4.1 percent in December, the lowest level in almost 17 years, indicating that the economy is close to full employment, according to the Labor Department.
Adam Posen, president of the Peterson Institute for International Economics, a Washington-D.C. based think tank, also believed the U.S. economy would go through "another little boom and bust cycle" due to the tax cuts. He predicted that the U.S. economy will likely see another recession at the end of 2020 or early 2021.
