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The Feds Inflation Target 16 To 19

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by Felix Salmon
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Nov 20 2007 12:00am EDT

The Fed's Inflation Target: 1.6% to 1.9%

How's my formula doing, now that the latest FOMC minutes have been released? If you recall, I said that when it comes to the Fed's inflation target,

I=C=H=c=h

Where I is the Fed's de facto inflation target, C is the most recent 3-year core inflation forecast, H is the most recent 3-year headline inflation forecast, c is the previous 3-year core inflation forecast, and h is the previous 3-year headline inflation forecast.

Well, we've only had one set of these 3-year forecasts, so c and h don't exist. But at first glance I=C=H, since the 3-year core inflation forecast of 1.6% to 1.9% is the same as the 3-year headline inflation forecast of 1.6% to 1.9%. We can therefore say that the Fed's inflation target is between 1.6% and 1.9%.

That said, however, the two forecasts are not completely identical. While the range of projections in both cases is the same, for core inflation a plurality of participants projected between 1.7% and 1.8%, while for headline inflation a plurality projected between 1.9% and 2.0%. So clearly there are individual FOMC members who have different 3-year projections for each one. Overall, however, my equality holds.

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