CHICAGO, Aug 11 (Reuters) - Countries with explicit
inflation targets have done a better job at anchoring inflation
expectations than the United States, a report from the San
Francisco Federal Reserve said on Friday.
"Despite the generally superb performance of the U.S.
economy and U.S. monetary policy over the past 15 years, there
is still potential for improvement," said San Francisco Fed
research advisor Eric Swanson.
The benefits of better-anchored inflation expectations
could include lower, more stable long-term interest rates and
ultimately a more productive and stable U.S. economy, he said.
The report cited the U.K., Sweden and Canada as countries
where long-term inflation compensation -- reflected by
inflation-indexed debt -- has not responded "systematically" to
economic news since inflation targets were instituted.
"A natural interpretation of this finding is that the
presence of an explicit numerical inflation objective has
indeed helped to 'focus and anchor' private sector and
financial market inflation expectations," Swanson said.
This supports the view than an explicit inflation objective
would improve the anchoring of long-term U.S. inflation
expectations, he said.
A potential move to specific inflation objectives, or
targets, is expected to be debated over the coming months by
Fed policy-makers as part of a broader overview of Fed
Fed Chairman Ben Bernanke, a long-time advocate of
targeting, tapped his deputy, Donald Kohn, to lead the panel,
which also includes San Francisco Fed President Janet Yellen
and Minneapolis Fed President Gary Stern.
Kohn has opposed inflation targeting in the past, while
Stern has supported targeting. Yellen supports the adoption of
an announced numerical inflation objective, which she
distinguishes from a "target."
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