Wall Street's reaction to Tuesday's consumer price index (CPI) shows investors are realizing inflation is likely to remain higher than the Federal Reserve's goal for longer. Two heavyweight market voices say the 2 percent target is part of the problem.

"Back in the day, they should've said 3 percent instead of 2 percent," Kenneth Rogoff, a professor at Harvard University and former Fed economist, told Bloomberg Television Tuesday. "If you change it, it means you might change it again. Inflation they're going to allow to be elevated for longer, but they're going to say it's going to get back to 2 percent, it's just taking longer. That will be the rhetoric."

Equities whipsawed Tuesday after data showed the CPI at 6.4 percent in January from a year earlier, still far above the Fed's goal despite months of interest rate increases. Following the report, a raft of Fed officials said the central bank may need to keep tightening to ensure inflation continues to fall.

Continue Reading for Free

Register and gain access to:

  • Thought leadership on regulatory changes, economic trends, corporate success stories, and tactical solutions for treasurers, CFOs, risk managers, controllers, and other finance professionals
  • Informative weekly newsletter featuring news, analysis, real-world cas studies, and other critical content
  • Educational webcasts, white papers, and ebooks from industry thought leaders
  • Critical coverage of the employee benefits and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.