Why Bank of Canada, US Fed Should Adopt Lower Inflation Targets

With the Bank of Canada and Fed chomping at the bit to raise rates while inflation sputters, many question what the inflation target should be and if a policy error is being made.
Why Bank of Canada, US Fed Should Adopt Lower Inflation Targets
Bank of Canada governor Stephen Poloz holds a press conference in Ottawa on June 8. Bank of Canada communication in late June has given markets cause to raise expectations of an interest rate hike in 2017, something deemed unlikely at the time of the central bank’s last decision date on May 24, 2017. The Canadian Press/Sean Kilpatrick
Rahul Vaidyanath
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The Bank of Canada and U.S. Federal Reserve are used to being questioned about how they set interest rates to govern the economy. With the two central banks chomping at the bit to raise rates while inflation sputters, many question what the inflation target should be and if a policy error is being made.

The central banks’ primary mandate is to ensure a low and stable level of inflation. One can make a good argument that they’ve achieved this in aggregate.

The latest inflation reading in Canada showed the consumer price index (CPI) rose just 1.3 percent, down from 1.6 percent a month earlier. The Bank of Canada’s three measures of core inflation, which exclude volatile items, average 1.33 percent.

Inflation in Canada (Courtesy Bank of Canada website)
Inflation in Canada Courtesy Bank of Canada website
Rahul Vaidyanath
Rahul Vaidyanath
Journalist
Rahul Vaidyanath is a journalist with The Epoch Times in Ottawa. His areas of expertise include the economy, financial markets, China, and national defence and security. He has worked for the Bank of Canada, Canada Mortgage and Housing Corp., and investment banks in Toronto, New York, and Los Angeles.
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