A specific target might help to prevent high inflation, but it could also allow the Fed to intervene more aggressively
Last week at a press conference, Bernanke conceded that the Federal Reserve is humoring the idea of adopting a specific inflation target. When inflation hawks heard this, their ears perked up. Finally, the Federal Reserve would be forced to aim for inflation within a certain range -- that would mean an end to their aggressive monetary stimulus efforts, right? Not necessarily. It might not change their policy making and could actually result in even more aggressive intervention.
Here's Andrew Ackerman at Real Time Economics reporting that Sen. Richard Shelby (R-AL) is one such hawk who's pretty excited about the prospect of an explicit inflation target:
Sen. Richard Shelby (R., Ala.) said in an interview that he would urge Fed Chairman Ben Bernanke, a proponent of a formal inflation target, to pursue the matter when the central banker next testifies before his committee in July.
Shelby is likely excited about the sort of situation that the U.S. is in currently. Inflation is at a level that the Fed finds acceptable, which means that it isn't as likely to worry about the full employment side of its dual mandate. For those who don't believe that it should be the Fed's job to smooth economic cycles, this possibility makes an explicit inflation rate target appealing.