Analyst Warns Fed Obsession with 2% Inflation is a Mistake

The Federal Reserve’s long-held inflation target of 2 percent should be thrown into the “academic ditches,” closely followed analyst Peter Boockvar warned on Monday.

The remarks by the chief market analyst for The Lindsey Group on CNBC came after a Wall Street Journal article said economists and central bankers are beginning to think the 2 percent inflation target is a mistake.

The Fed is considering alternatives, including even letting inflation rise above 2 percent, after an extensive period of low inflation and interest rates, the Journal reported.

“To say we need to raise the cost of living by 2 percent is somehow going to make a better economy remains outrageous and remains in the halls of academia and not real life,” Bookvar told “Squawk Box.” “It’s reducing the purchasing power by 2 percent.”

Boockvar said he’d rather have “price stability.”

“Ideally, that’s how you gain wages,” he said. “Earnings are only growing around 2 percent.”

During a conference in Madrid in March, Chicago Fed President Charles Evans said long-term inflation expectations may still be running below the Fed’s target, though in the short-term prices are rising toward the figure.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza