Group of 30: Federal Reserve Should Focus on Inflation Target

Group of 30, an independent global consultative group, said Wednesday (April 30) that the Federal Reserve should focus on its 2% inflation target, prioritizing that over its unemployment objective.

“The central bank should also shift the employment objective back to seeking the maximum level of employment consistent with its 2 percent inflation target and provide clarity about how the trade-offs between the employment and inflation objectives will be managed when they are in conflict,” William C. Dudley, Chair of the G30 Working Group on the 2025 Federal Reserve Monetary Policy Framework, Review said in a Wednesday press release.

Dudley is a former president of the Federal Reserve Bank of New York, according to the release.

The shift in focus suggested in the report would mark a change for the Federal Reserve, which has had a bias toward jobs over inflation for nearly five years, Reuters reported Wednesday. It has also ignored low unemployment as an inflation risk and viewed maximum employment as its goal.

This and other recommendations to improve the Federal Reserve’s monetary policy framework are included in a Group of 30 report published Wednesday, “The Federal Reserve Monetary Policy Framework Review: A Comprehensive Approach to Improve Robustness.”

The press release noted that this report comes at a time when the Federal Reserve is working on a formal review that will be completed later this year.

The Fed is conducting its review to decide whether to revise its approach after seeing the high inflation that followed the operating strategy it put in place in August 2020, when the pandemic and economic shutdown were pressuring the economy, according to the Reuters report.

The Fed launched its first review of its longer-run strategy in 2019, published an updated strategy document in 2020 and plans to complete its latest review by late summer, Bloomberg reported Thursday.

The Group of 30’s report also recommended that the Federal Reserve’s staff forecast be published at the end of each meeting of the Federal Open Market Committee (FOMC).

“We believe this would improve the public and market understanding of the information that the FOMC considers as it assesses the economic outlook and related uncertainty, as well as the FOMC’s monetary policy reaction function,” Carolyn A. Wilkins, project advisor of the G30 Working Group and senior research scholar at the Griswold Center for Economic Policy Studies at Princeton University, said in the release.

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