10 By definition, an increase in an implicit inflation target would lead to an upward shift in inflation expectations. And how would a central bank make credible its promise that such a shift would be only a one-time event? We do not understand sufficiently the determinants of inflation expectations to be confident that a regime change can be controlled.
Central banks, here and abroad, have worked for decades to get inflation down to levels consistent with price stability. We should not risk these hard-won gains. In changing the goal posts at this time of consequence, substantial harm would be done to a central bank’s institutional credibility, and perhaps lead to an unmooring of inflation expectations.