Some central bank will inevitably try price-level targeting
The Fed's Williams is getting some attention today because earlier this month he presented a paper on price-level targeting.
It's something that Bernanke has been talking about recently. It means that if the Fed misses its target one year, it will let inflation run above target the following year to make up for the shortfall.
"Arguments for price-level targeting are just much more powerful now than 20 years ago," Williams told Bloomberg.
The problem is that the Fed really doesn't have as much power to boost prices as it believes. Despite some crazy monetary policy experiments, we're still trying to get to 2% inflation a decade after the crisis.
The hope is that a signal of price level targeting would force businesses, unions and workers to price in future price rises but I just don't think the Fed has the credibility to pull it off.
