introduce an additional risk by calling into question the fomc ’ s commitment to stabilizing inflation at any level because it might lead people to suspect that the target could be changed opportunistically in the future. if so, then these reputational costs will undermine the key benefits of well - anchored longer - run inflation expectations discussed above : an increased ability of monetary policy to fight economic downturns without sacrificing price stability. moreover, if the purpose of a higher inflation see, for example, summers ( 1991 ) and reifschneider and williams ( 2000 ). blanchard, dell ’ ariccia, and mauro ( 2010 ), among others, have suggested that central banks should consider raising their target inflation rate, on the grounds that conditions since the financial crisis have demonstrated that monetary policy is more constrained by the effective lower bound ( elb ) on nominal interest rates than was originally estimated. ball ( 2013 ), for example, has proposed 4 percent as a more appropriate target for the fomc. while it is certainly likely that earlier analyses of the implications of the elb significantly underestimated the likelihood of severe recessions and slow recoveries of the sort recently experienced in the united states and elsewhere ( see chung and others, 2012 ), it is also the case that these analyses did not consider central banks ’ ability to use large - scale asset purchases and other unconventional tools as a means of providing economic stabilization in the presence of the elb constraint. target is to increase the ability of the central bank to deal with the severe recessions that follow financial crises, then a better strategic approach might be to rely on more vigorous supervisory and macroprudential policies that could help reduce the likelihood of such events. further, seeking an inflation rate in the vicinity of 4 percent or higher would certainly stretch the meaning of “ stable prices ” in the federal reserve act. 12 conclusion in conclusion, today, i have discussed with you how persistently high inflation hurts everyone and how the fed must jointly achieve price stability and maximum employment to fulfill its dual mandate over time. i also discussed how persistently low inflation is costly, and how changing the 2 percent inflation target would damage the central bank ’ s credibility. for these reasons, i am committed to lowering inflation to our 2 percent target. this is a very exciting time to study economics. i hope that the ways of thinking you are developing in this class will help you better understand economic phenomena that you observe and the challenges

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