Trump's potential candidate at the Federal Reserve wants a 0% inflation target

REUTERS / Jason Reed

• Potential US Federal Reserve candidate Judy Shelton said she was in favor of a 0% inflation target, adding that it would give stable price signals in the economy.
• The Federal Reserve currently targets an inflation rate of 2%, a level that officials consider optimal for the economy.
• Economists say that a 0% inflation target would leave the Federal Reserve with fewer tools to help the economy in the event of a slowdown.

Conservative economist Judy Shelton, who was nominated as a potential candidate for the board of governors of the Federal Reserve, said she would favor an inflation target of 0%.

"My ideal would be zero," she said about her favorite inflation target in an interview with Markets Insider. "Stable price means stable."

The Congress has set specific targets for the Fed, including stable prices and maximum employment. The Fed currently aims for inflation of 2%, a level that managers consider optimal for the economy.

"What you really want to do is that the level of money and credit in an economy is calibrated on stable and consistent price signals that are transmitted over time," she added. "It would be ideal."

This would be a departure from the current policy of setting a positive inflation target, which economists consider optimal. partly because price changes are difficult to measure accurately.

"Price stability" is vague and has been interpreted at 2%, partly because there is still a bias in the price indices as it is difficult to incorporate quality improvements, "he said. said Menzie Chinn, an economist at the University of Wisconsin in Madison. .

A 0% inflation target would leave the central bank with fewer tools in the event of a slowdown and could eventually lead to lower prices, according to Josh Wright, a former Fed employee who is now the ## 147 ## Chief Economist at iCIMS, a recruitment software company.

"Since inflation still has some volatility, a zero per cent inflation target would likely mean we would witness significant deflation over time," he said. "Deflation disadvantages borrowers, so households who need to borrow to pay for their education or housing would be affected."

In May, the New York Times and Bloomberg announced that Shelton was about to be on the Fed's list of seats. She told Markets Insider that she had been contacted by the Office of the Presidential Staff.

Read the full interview with Shelton here: