Will the “spirit of Kocherlakota prevail”?

In the opinion page of the WSJ today, Alan Blinder muses about “turns of phrases at the FOMC”:

The battle at the Federal Open Market Committee is now on. Score the previous meeting in late July for the inflation hawks, but last week’s meeting went for the doves, who are more worried about jobs. I haven’t discussed the meetings with any Fed officials, but here’s my reading of what has been going on.

I only wish that the “spirit of Kocherlakota” infuses the next FOMC meetings, although some adjustments would make it even more effective:

“The lack of a public timeline for a goal can sometimes lead to a lack of urgency in the pursuit of that goal,” he said. “I believe that, if the FOMC publicly articulated a reasonable time benchmark for achieving the inflation goal, the Committee would be led to pursue its inflation target with even more alacrity.”

Mr. Kocherlakota said the idea of targeting the overall price level rather than the rate of inflation “deserves further study.” Under such a system, the Fed would effectively overshoot its inflation goal for a time to make up for earlier misses to the downside.

Substitute “targeting the overall price level” for “targeting an NGDP level” and the economy would likely perform a “home run”! As I showed in the previous post, as of today the economy is short about 1.7 trillion dollars.

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