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Fed's Bullard says inflation miss has 'cost' U.S. lost growth

Reuters  |  ST. LOUIS 

(Reuters) - Sub-par over the past five years has caused a shortfall in the versus its potential growth path, St Louis James said on Wednesday as he fleshed out a proposal for a more dynamic system of setting price increase goals.

Several policymakers are encouraging

to review its method for controlling and consider a system that makes up for weak in one year by allowing prices to rise more quickly in future years so that the overall level, over time, stays on a set path.

The currently aims to get annual to a rate of 2 percent.

said the Fed's inability to get to its target over the past five years has allowed a 4.6 percent gap to emerge in where the economy, measured in nominal terms before adjusting for price increases, would have been otherwise.

That amounts to more than $820 billion in an $18 trillion economy, according to calculations based on Bullard's 4.6 percent figure.

The shortfall since 2012 "has opened up a substantial gap between the actual and desired price level," said in prepared remarks for a speech to the

To compensate, the would have to allow annual of 2.5 percent for a decade - a sign of just how large the gap has become but also of how aggressive the central would have to be in its commitment to make up for it.

One of the criticisms of so-called price-level targeting is that it would require central bankers to not only convince politicians and the public that the higher would improve the overall, but also that the level of price increases could be brought seamlessly back into line.

said shifting to such a system "would likely take a lot of preparation and debate."

Several policymakers are encouraging just such a discussion as winds down her four-year term and her successor, Jerome Powell, prepares to take over.

(Corrects to make clear in paragraph five that lost output figure is calculation based on Bullard's 4.6 percent gap comment)

(Reporting by Howard Schneider; Editing by Paul Simao)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, January 11 2018. 04:39 IST
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