Number: 98-16 Title: Should the Federal Reserve Adopt an Inflation Target? Authors: Marc Labonte and Gail Makinen, Government and Finance Division Abstract: Recently, the critics have urged that the multiple policy goals of the Federal Reserve (Fed) be replaced by a single goal of price stability. Critics believe that central bankers tend to use their discretionary powers to achieve political as well as economic objectives, notably to create "good times" through monetary expansion. Since these "good times" do not last long, such a policy imparts a costly inflationary bias to an economy and, hence, is not economically optimal over time. Among other virtues, it is argued that a single goal would provide an explicit anchor for the American monetary system. Pages: 27 Date: June 23, 2008