How Much Is Too Much?; Fed Looks for Its Comfort Zone in Debate Over Inflation
Behind the closed doors of the Federal Reserve's marble temple on Constitution Avenue, a fervent debate is underway this week. The subject might seem, at first glance, to reflect minor differences of opinion.</br></br>Should the Fed explicitly tell the public what level of inflation it wants to achieve? And if so, should that goal be in the 1 to 2 percent range, or "comfort zone," expressed by many central bankers in recent years, or should the upper limit be raised to as high as 3 percent?</br></br>Close as those numbers may sound, the implications for every American family are substantial. If the Fed enforces a low- inflation goal vs. one that is slightly higher, consider what a pair of pants or a loaf of bread would cost a decade from now, assuming they track the overall inflation rate.</br></br>If inflation runs a modest 1.5 percent a year, typical of the level in the late 1990s, a $70 pair of pants would cost $81.24 in 10 years and a $2.79 loaf of bread would cost $3.24. But if inflation, running at more than 2 percent recently, is allowed to creep up to 3 percent a year, those pants would cost $94.07 in a decade, and the bread would cost $3.75.</br></br>How much people's paychecks will buy in the future, how far their retirement money will go, how many people might need to be thrown out of work to achieve a stated inflation goal -- all these outcomes could be influenced by a debate among the nation's central bankers at their meetings yesterday and today, to which the public has no access.