Focus on 135

We can change Fed policy. By we, I mean all the groups that talk about the Fed.

Of course 99% of Americans pay no attention to Fed policy. The other 1% includes pundits like me, reporters, academics, blog readers like you, big bankers, some politicians, and investors.

To make policy more effective we need to keep mentioning the number 135, over and over and over again. The PCE price level must be near 135 in January 2030 if average inflation targeting is to be a success.

The Fed wants to keep it all quite vague so that they have more discretion, more excuses for failure. But it’s actually pretty clear what success means; it means a PCE price level of 135 in January 2030. That’s the criterion for success.

All discussion of monetary policy should now include a reference to 135. “How’s the Fed doing at delivering the 135 price level that they promised?” The Fed may not believe it made that promise, but what else could AIT mean if not a promise to produce an average inflation rate of 2% over this decade? There’s no other sensible interpretation. A PCE of 130 would be a failure. A PCE of 140 would be a failure. It must be near 135.

So hold them to their promise. Hold their feet to the fire!





135 . . .

(Straussian reading: I’m trying to convert their AIT promise to PLT.)



9 Responses to “Focus on 135”

  1. Gravatar of Sean Sean
    28. August 2020 at 11:55

    Serious question is 2% enough over the next decade it seems like it would lead us to failure on other measures. As I expect a productivity hit. So hitting the old target would actually be failing to hit trend ngdp growth or trend wage growth.

  2. Gravatar of Ray Lopez Ray Lopez
    28. August 2020 at 15:12

    Under the NY Penal code, Section 135 is the crime of unlawful imprisonment. So to hold the Fed to this level would be a crime.

    S 135.05 Unlawful imprisonment in the second degree. A person is guilty of unlawful imprisonment in the second degree when he restrains another person

  3. Gravatar of Benjamin Cole Benjamin Cole
    28. August 2020 at 15:21

    I propose that if no 135 by 2030 then one-half of all economists in the Fed system, both in branches and HQ, be eliminated.

    That might change a certain complacent ossification.

    Also, what is the purpose of all those economists if the Fed fails in its “one job”?

  4. Gravatar of ssumner ssumner
    28. August 2020 at 15:35

    Sean, Hard to say. I will probably be slightly less than optimal, but nothing major.

  5. Gravatar of Benoit Essiambre Benoit Essiambre
    28. August 2020 at 17:48


  6. Gravatar of Postkey Postkey
    29. August 2020 at 06:07

    135? No chance according to T.G.C.?

    “As noted here last month, the main points argued in the Institute’s recent research are that – the policy response to Covid-19 has resulted in marked accelerations in money growth in many nations, particularly in the world’s leading economy, the USA, – given an eventual return to normal levels of the velocity of circulation, reflecting the long-run stability of households’ and companies’ money-holding preferences (for which the evidence of overwhelming), the accelerations in money growth will be followed by similar accelerations in the growth of nominal national income, and – given further that the world’s underlying productive capacity has not been helped by Covid19 (and may to a minor degree have been impaired by it), much higher growth of nominal national income must lead to faster inflation than has been standard in the last 20/30 years. This remains a minority position, although expectations in financial markets are shifting from the deflation fears that were rampant in March and April. The gap between yields on conventional and inflation-protected US Treasuries now points to a market expectation of roughly 1½% inflation on average in the next five years, compared with 0.14% at the extreme low on 19th March. But 1½% inflation is a tiny figure relative to the 25% surge in the US quantity of money in the year to June. The dollar has fallen on the foreign exchanges since end-March (by, for example, about 7%/8% against the euro), while American share prices have made larger gains from the March lows than those in Europe and elsewhere. Both developments are consistent with an eventual upturn in consumer inflation. “

  7. Gravatar of A “simple solution” to the Fed´s new AIT framework | Historinhas A “simple solution” to the Fed´s new AIT framework | Historinhas
    29. August 2020 at 08:34

    […] following this path going forward, in ten years’ time, the index will reach Scott Sumner´s “magic number” of 135 (Ok, he means the headline index, but I´ve argued that´s a bad index to target and […]

  8. Gravatar of marcus nunes marcus nunes
    29. August 2020 at 08:41

    If the Fed is “smart” it will get there with no additional effort!
    A “simple solution” to the Fed´s new AIT framework

  9. Gravatar of Justin Irving Justin Irving
    2. September 2020 at 11:53

    This is a great idea. 135 gang. No excuse for the Fed not to get to ~135. They owe us this.

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