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    Europe’s low-tax nations braced for struggle over US corporate tax plan

    Europe’s low-tax nations have responded positively to the Biden administration’s plans for a radical reform of global corporate taxation, even though they will lose out — but signalled that Washington can expect a fight over much of the detail.The proposal, which first emerged last week, seeks to break the deadlock in long-running global talks hosted by the OECD club of wealthy nations. It would give countries the power to raise corporate tax from US tech giants and other large multinationals, and introduce a global minimum corporate tax rate.That would be a blow to Ireland, the Netherlands, Luxembourg, Malta and Cyprus, all popular bases for the world’s largest companies, which have fiercely defended their right to set corporate tax at a level of their choosing.Despite this, Dublin said it was “in favour of an agreement . . . that can bring stability to the international tax framework”, while Hans Vijlbrief, the Netherlands state secretary for finance, said the Biden plan was a “huge step towards finding global solutions and developing effective rules”. Pierre Gramegna, Luxembourg’s finance minister, said the US initiative would help create a “global level playing field” and welcomed the renewed cooperation at the OECD. Malta and Cyprus have not commented.“Few countries will ever criticise plans to root out tax avoidance. But it is only when you start walking the talk that some countries walk in the other direction,” said Tove Maria Ryding, policy manager at the European Network on Debt and Development in Brussels. 

    The ease with which the world’s biggest multinationals can channel their profits through these jurisdictions to reduce their overall tax burden has long been a cause for complaint among major European economies that lose out on revenue generated in their countries.However, any new EU-wide taxes require the unanimous agreement of all 27 member states, handing a veto to governments that are fiercely protective of their taxation rights. As a result, EU finance ministries have been struggling for years to agree on bloc-wide policies to root out multinational tax avoidance.In 2018 an alliance of smaller countries blocked plans for a European tech tax in favour of holding international talks at the OECD.And earlier this year countries including Ireland, Malta and Luxembourg opposed draft EU plans to force multinationals with more than €750m in annual turnover to report how much profit they made and tax they paid in all EU member states. The proposal, which is subject to final negotiations between MEPs and national governments, is seen by its exponents as a first step towards documenting the scale of tax avoidance in Europe. Brussels’ legal assaults on “sweetheart” tax arrangements between governments and corporate giants have had mixed results. The European Commission suffered an embarrassing defeat last year when its landmark decision to force Apple to repay €14.3bn in unpaid taxes to the Irish government was annulled by the EU’s general court. The commission will appeal against the decision, but in the meantime efforts to use EU law to crack down on multinationals have been stymied.All this helps to explain why the US proposals were greeted relatively warmly: the agreement under negotiation through the OECD would cover 135 countries and all of the world’s largest corporations, in effect taking the task out of Brussels’ hands.

    “The OECD measures mean the EU won’t need its own digital tax,” said an EU diplomat.Paolo Gentiloni, EU economics commissioner, on Tuesday welcomed the US initiative and said a new set of global rules for the taxation of digital giants was the “best solution”. “The second best solution is to have a European [digital tax] proposal. The most difficult is to have national solutions which is what is happening now,” he said. However he noted the US plans were “not exactly the same” as those being developed in Europe. “The criteria will be crucial but I think we can find very strong common solutions,” he said. That leaves plenty of room for dispute over the details of how the scheme would be implemented.The biggest battle is likely to be the level of the global minimum rate. The US proposes a 21 per cent effective minimum corporation tax. While the Netherlands and Luxembourg have headline rates higher than this, Ireland’s corporate tax rate stands at 12.5 per cent.The Irish finance ministry stressed that a global minimum rate had yet to be agreed in principle.“Small countries, such as Ireland, need to be able to use tax policy as a legitimate lever to compensate for advantages of scale, resources and location enjoyed by larger countries,” the finance ministry said. “At the same time, we accept that there need to be boundaries to ensure any competition is fair and sustainable.”Feargal O’Rourke, managing partner of PwC in Ireland, said an international minimum would be resisted by Ireland and countries such as Hungary, which has a 9 per cent rate. “Ireland is saying ‘we’re going to fight our corner’, as you’d expect,” O’Rourke said, noting that “in good times and bad times Ireland held on to the rate . . . it’s a symbol of stability and predictability”. However, he said, there was “no panic” in Dublin about the potential erosion of Ireland’s tax advantage. Ministers believe the country’s highly skilled international workforce and longstanding relationships with multinational companies will make it competitive even if its tax position changes. “Tax is now just one of the many points of attraction Ireland has [for multinational companies]. If this had happened 20 years ago it would have been more of a concern.”

    The scope of the US proposals is contentious in parts of Europe: member states such as France and Italy have long wanted to impose international taxes on tech giants, but Germany could seek to protect its powerful carmakers, which were not covered by the initial OECD proposals but would be hit by the US plan.The definition of what the tax is levied on could also be contested, Ryding said: “One way of watering down [the minimum tax proposal] would be to push for the rules to apply only to profits that are not compliant with existing OECD measures on profit shifting.”Ultimately, the OECD talks will need to reach a broad consensus, leaving ample room for coalitions of countries to band together and water down elements of the US proposals.Ryding said that despite most governments’ desire to generate more tax revenues, the history of recent international tax negotiations suggests the talks will veer towards a lowest common denominator deal. “In the EU and the OECD we don’t have coalitions of progressive countries calling for more, but alliances of tax havens who want less,” she said. More

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    China’s digital currency is a threat to dollar dominance

    The writer is chief investment officer for Templeton Global MacroMarkets have been gripped by cryptocurrency fever. The price of bitcoin has attained new highs while debate has raged over the emergence of cryptocurrency technology.But these may be a sideshow for a big developing trend — the rapid digitalisation of the renminbi.This shift, combined with other macroeconomic and political factors, could be the key that accelerates the decline of the dollar’s dominance as the world’s leading reserve currency. It could also hasten the acceptance of the renminbi as the main rival to the US currency.Central banks around the world have been grappling in recent years with the concept of digital currency technology. Few nations, though, are as aggressive as China in their approach to developing a so-called central bank digital currency.Such a currency would be overseen by a central governmental authority, removing the element of anonymity that is fundamental to the decentralised, blockchain-ledger of popularised cryptocurrencies like bitcoin or ethereum. The theoretical benefits of government oversight of these new digital assets are numerous.CBDCs allow for greater prevention of fraud or crime, enable instantaneous international transactions, reduce transaction costs, permit greater financial inclusion and aid the provision of direct fiscal stimulus to individual citizens.For China, adoption of a CBDC both within and beyond its borders would allow its financial system to reduce reliance on the dollar and limit the role and oversight of foreign financial institutions and regulators. While many countries have started discussing the potential future application of CBDCs, China has pushed ahead with development.In April 2020, Beijing piloted a digital currency in four cities, allowing commercial banks to run internal tests converting between cash and digital money, account-balance checks, and payments. The pilot programme expanded to 28 major cities in August. Aiming for broad circulation in 2022, China plans to test the digital currency in additional major cities, including Beijing and Shanghai, this year.This pioneering approach should accelerate the elevation of the renminbi on the world stage. Some users outside China, particularly in the US, might be reluctant to use a digital currency controlled by China. However, early adoption in parts of Asia, Latin America and Africa is likely to proceed significantly faster.Global reserve currencies’ relative importance historically is explained by the macroeconomist Barry Eichengreen. Currencies are more prized as reserve assets when they satisfy two conditions: first, when they are stable, liquid and widely used in international transactions; and second, when they are backed by a country to which another state has important security links.China’s development in recent years puts it on a clear path to satisfy these criteria as its government has maintained relative policy stability. The country accounted for 16 per cent of global output in 2019, but the renminbi represented a little over 2 per cent of global reserves as of the second quarter last year.Lack of renminbi-denominated assets for foreigners to own has inhibited its rise as a reserve currency. But now the renminbi will be supported by the Chinese authorities opening their $15tn domestic bond market to foreign participants. Greater demand for these bonds will push down yields, lowering borrowing costs.More important, if China captures the first-mover advantage to meet the world’s demand for use of digital currencies to settle international financial transactions and own digital assets, the appeal of its CBDC could rise sharply.China has also made great strides in invoicing its trade in renminbi. The security and geopolitical rationale for holding renminbi has become stronger through such measures as China’s Belt and Road Initiative financing of projects in developing countries.Covid-19 might also be a catalyst for the greater acceptance of the renminbi as a global reserve currency. The economic carnage of the pandemic has sent already large fiscal deficits ballooning and driven even more accommodative monetary policy in the US. This historically unique combination of impending massive fiscal and vaccine-led growth, where short-term interest rates are anchored at zero, will expand an already large current account deficit, putting further pressure on the value of the dollar.The digitalisation of the renminbi will add to these economic and geopolitical factors. This will have a durable, transformative impact on the international economy. More

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    Singapore keeps monetary policy on hold amid patchy recovery

    SINGAPORE (Reuters) – Singapore’s central bank kept monetary settings unchanged on Wednesday and said the accommodative policy stance was appropriate due to a benign inflation outlook and global economic uncertainties caused by the pandemic.Singapore’s dollar strengthened 0.2% after the policy decision and data that showed the economy unexpectedly growing in the first quarter from a year earlier. The Monetary Authority of Singapore (MAS) manages monetary policy through exchange rate settings, rather than interest rates, letting the local dollar rise or fall against the currencies of its main trading partners within an undisclosed band.Barring a setback to the global recovery, Singapore’s economy is likely to exceed the upper end of the official 4–6% forecast range, the MAS said. But the sectors worst hit by the crisis will continue to face significant demand shortfalls, it added.”As core inflation is expected to stay low this year, MAS assesses that an accommodative policy stance remains appropriate,” the central bank said in its statement. The MAS expects core inflation, its preferred price gauge in setting monetary policy, to rise only gradually for the rest of the year and come in at 0%–1% in 2021. It raised its forecast range for headline inflation to 0.5–1.5% from −0.5 to 0.5% previously.The central bank adjusts its policy via three levers: the slope, mid-point and width of the policy band, known as the Nominal Effective Exchange Rate, or S$NEER.On Wednesday, the MAS said it would maintain a zero percent per annum rate of appreciation of the policy band. The width of the policy band and the level at which it is centered will be unchanged.All 15 economists polled by Reuters had forecast the MAS would keep its policy unchanged.”As such, persistent weakness in the aviation and retail & hospitality sector will hold back the recovery,” said Alex Holmes, economist at Capital Economics. He expects policy settings to remain unchanged for at least the next year.Gross domestic product (GDP) ticked up 0.2% in January-March on a year-on-year basis, official data showed on Wednesday, surprising economists who had expected a 0.2% decline.Singapore, which has brought its local virus situation under control and is rolling out vaccinations, is on a gradual recovery path after its worst ever recession last year. But analysts say external demand and reopening of international borders is key to growth. “Depending on how the whole vaccination and re-opening of all the air travel bubbles and borders go, there could be potential upside going into the second half of the year,” said Selena Ling, economist at OCBC Bank. More

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    Toshiba to discuss exec appointments as CEO seen stepping down

    Kurumatani is planning to resign as he faces controversy over a $20 billion buyout bid from his former employer, CVC Capital Partners, a source with knowledge of his decision told Reuters on Tuesday.Kurumatani’s departure could upend CVC’s offer last week to take the Japanese company private. The takeover was seen as a means to shield him and other managers from pressure from activist shareholders seeking an investigation into whether management pushed investors to support their decisions.”Reports about the replacement of our president and CEO are not something we announced,” Toshiba said in a statement. “The company will announce any decision that requires disclosure.”Shares in Toshiba jumped 6.8% in early trade to 4,905 yen, approaching the 5,000 yen reportedly offered by CVC Capital. More

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    U.S. trade czar meets unions, companies as pressure mounts for IP waiver to boost vaccinations

    WASHINGTON (Reuters) – U.S. trade czar Katherine Tai is meeting with unions, industry executives and advocacy groups as Washington faces mounting pressure to back a temporary waiver of intellectual property rights to accelerate COVID-19 vaccinations around the world.U.S. Trade Representative Tai, who helped broker Sunday’s agreement in a thorny trade case involving South Korean battery makers, is seeking input before a virtual World Trade Organization meeting on the issue on Wednesday.Tai met with representatives from more than 20 unions, including the AFL-CIO, International Brotherhood of Teamsters and the Association of Flight Attendants, her office said.She underscored the Biden administration’s commitment to increasing COVID-19 vaccine production and distribution, both at home and worldwide, USTR said, seeking the organizations’ views on increasing vaccine availability and preventing the emergence and spread of new variants.Biden’s top trade negotiator also met with officials from eight groups, including Public Citizen, Oxfam America, Human Rights Watch and Doctors without Borders, who want Washington to change course and allow an increase in the production of vaccines.WTO Director-General Ngozi Okonjo-Iweala will convene major manufacturers, banking officials and ministers from wealthy and developing countries on Wednesday to discuss vaccine export restrictions and a waiver of IP rights for COVID-19 drugs.Okonjo-Iweala told Reuters on Monday she believed members could break the current deadlock on the IP waiver issue, but no details of a possible compromise have emerged.Dozens of countries are backing a proposal by India and South Africa to suspend COVID-19 vaccine and other medical patents to speed up technology transfers to manufacturers with spare production capacity, but the United States, Britain and other rich countries have blocked the measure.Winning approval for the plan requires backing by a consensus of the WTO’s 164 members.Big drug companies oppose patent waivers and say appropriate patent protections ensure that private investors have an incentive to pump money into research and development. More

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    The Biden Administration Is Quietly Keeping Tabs on Inflation

    A monthslong effort to monitor and model economic trends inside the White House and the Treasury Department found little risk of prices spiraling upward faster than the Fed can manage.WASHINGTON — Even before President Biden took office, some of his closest aides were focused on a question that risked derailing his economic agenda: Would his plans for a $1.9 trillion economic rescue package and additional government spending overheat the economy and fuel runaway inflation?To find the answer, a close circle of advisers now working at the White House and the Treasury Department projected the behaviors of shoppers, employers, stock traders and others if Mr. Biden’s plans succeeded. Officials as senior as Janet L. Yellen, the Treasury secretary, pored over the analyses in video calls and in-person meetings, looking for any hint that Mr. Biden’s plans could generate sustained price increases that could hamstring family budgets. It never appeared.Those efforts convinced Mr. Biden’s team that there is little risk of inflation spiraling out of the Federal Reserve’s control — an outcome that Wall Street analysts, a few prominent Republicans and even liberal economists like Lawrence H. Summers, the former Treasury secretary, have said could flow from the trillions being pumped into the economy.Traditional readings of price increases are beginning to turn upward as the recovery accelerates. On Tuesday, the Consumer Price Index rose 0.6 percent, its fastest monthly increase in more than a decade, while a less volatile index excluding food and energy rose a more muted 0.3 percent.But Mr. Biden’s advisers believe any price spike is likely to be temporary and not harmful, essentially a one-time event stemming from the unique nature of a pandemic recession that ruptured supply chains and continues to depress activity in key economic sectors like restaurant dining and tourism.The administration’s view mirrors the posture of top officials at the Fed, including its chairman, Jerome H. Powell, whose mandate includes maintaining price stability in the economy. Mr. Powell has said that the Fed expects any short-term price pops to be temporary, not sustained, and not the type of uptick that would prompt the central bank to raise interest rates rapidly — or anytime soon.“What we see is relatively modest increases in inflation,” Mr. Powell said in March. “But those are not permanent things.”Armed with their internal data and conclusions, administration officials have begun to push back on warnings that a stimulus-fueled surge in consumer spending could revive a 1970s-style escalation in wages and prices that could cripple the economy in the years to come.Yet they remain wary of the inflation threat and have devised the next wave of Mr. Biden’s spending plans, a $2.3 trillion infrastructure package, to dispense money gradually enough not to stoke further price increases right away. Administration officials also continue to check on real-time measures of prices across the economy, multiple times a day.“We think the likeliest outlook over the next several months is for inflation to rise modestly,” two officials at Mr. Biden’s Council of Economic Advisers, Jared Bernstein and Ernie Tedeschi, wrote on Monday in a blog post outlining some of the administration’s thinking. “We will, however, carefully monitor both actual price changes and inflation expectations for any signs of unexpected price pressures that might arise as America leaves the pandemic behind and enters the next economic expansion.”Some Republicans call that posture dangerous. Senator Rick Scott of Florida, the chairman of his party’s campaign arm for the 2022 midterm elections, has called on Mr. Biden and Mr. Powell to present plans to fight inflation now.“The president’s refusal to address this critical issue has a direct negative effect on Floridians and families across our nation, and hurts low- and fixed-income Americans the most,” Mr. Scott said in a news release last week. “It’s time for Biden to wake up from his liberal dream and realize that reckless spending has consequences, inflation is real and America’s debt crisis is growing. Inflation is rising and Americans deserve answers from Biden now.”Economic teams in recent administrations spent little time worrying about inflation, because inflationary pressures have been tame for decades. It has fallen short of the Fed’s average target of 2 percent for 10 of the last 12 years, topping out at 2.5 percent in the midst of the longest economic expansion in history.Shortly before the pandemic recession hit the United States in 2020, President Donald J. Trump’s economic team wrote that “price inflation remains low and stable” even with unemployment below 4 percent. As the economy struggled to climb out from the 2008 financial crisis under President Barack Obama, White House aides feared that prices might fall, instead of rise.“Given the economic crisis, we worried about preventing deflation rather than inflation,” said Austan Goolsbee, a chairman of the Council of Economic Advisers during Mr. Obama’s first term.The conversation has changed given the large amounts of money that the federal government is channeling into the economy, first under Mr. Trump and now under Mr. Biden. Since the pandemic took hold, Congress has approved more than $5 trillion in spending, including direct checks to individuals.Mr. Biden’s aides are sufficiently worried about the risk of that spending fueling inflation that they shaped his infrastructure proposal, which has yet to be taken up by Congress, to funnel out $2.3 trillion over eight years, which is slower than traditional stimulus.An outdoor mall in Los Angeles. Critics have warned that that a stimulus-fueled surge in consumer spending could revive a 1970s-style escalation in wages and prices that could cripple the economy in the years to come.Philip Cheung for The New York TimesEven before Mr. Summers and others raised economic concerns about Mr. Biden’s $1.9 trillion relief bill, officials were wrestling with their own worries about its inflation risks. They had internally concluded, with direction from Mr. Biden, that the biggest risk to the economy was going “too small” on the aid package — not spending enough to help vulnerable Americans survive continued stints of joblessness or lost income. But they wanted to know the risks of going “too big.”They tested whether an uptick in inflation might cause people and financial markets to expect rapid price increases in the years to come, upending decades of what economists call “well anchored” expectations for prices and potentially creating a situation where higher expectations led to higher inflation. They estimated the odds that the Fed would react to such moves by quickly and steeply raising interest rates, potentially slamming the brakes on growth and causing another recession.The informal group that initially gathered to research those questions included Mr. Bernstein; David Kamin, a deputy director of the National Economic Council; Michael Pyle, Vice President Kamala Harris’s chief economic adviser; and two Treasury officials, Nellie Liang and Ben Harris. More members have joined over time, including Mr. Tedeschi.The group reports regularly to Ms. Yellen and other senior officials including Brian Deese, who heads the N.E.C., and Cecilia Rouse, who leads the C.E.A. Its work has informed economic briefings of Mr. Biden and Ms. Harris.“The president and the vice president, their job is to deliver good economic outcomes for the American people,” Mr. Pyle said in an interview. “Part of what delivering strong economic outcomes to the American people means is ensuring that their team is fully on top of both the tailwinds to the U.S. economy but also the risks that are out there. And this is one of them.”Mr. Pyle and his colleagues looked at financial market measures of inflation expectations, including one called the five-year, five-year forward, which currently shows investors expecting lower inflation levels over the next several years than they expected in 2018.At the same time, officials at the Treasury’s Office of Economic Policy conducted a series of modeling exercises to “stress test” the virus relief package and how it might change those price and expectation measures if put in place. They considered scenarios where consumers quickly spent their aid money, which included $1,400 checks, or where they did not spend much of it at all right away. They talked with large banks about trends in customers’ cash balances and how quickly people were returning to the work force. Ms. Yellen, a former Fed chair, helped adjust the models herself.The exercises produced a wide range of possibilities for inflation. But they never suggested it would rise so rapidly that the Fed could not easily handle it by adjusting interest rates or other monetary policy tools. They saw no risk of a sharp return to recession — and no reason to pull back from spending proposals that administration officials believe will help the economy heal faster and help historically disadvantaged groups, like Black and Hispanic workers, regain jobs and income.“We’re going to see some heat in this economy,” Mr. Pyle said. “That heat is going to be good and redound to the benefit of wages and labor market conditions overall and particularly for a number of communities that have been at the margins of the labor market for too long.”If the data proves that forecast wrong, officials say privately, they will be quick to adapt. But they will not say how. If inflation were to accelerate in a sustained and surprising way, some officials suggest, the administration would trust the Fed to step in to contain it.There is no plan, as of yet, for Mr. Biden to consider inflation-fighting actions of his own. More

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    Five signs of a rebounding economy from U.S. CPI

    While prices for some items like gasoline have been grinding higher for months, costs for some others are showing some of the first signs of returning consumer demand in sectors like travel, leisure and entertainment.GASOLINEAfter plunging last spring when the economy shut down in the early attempts to contain the coronavirus pandemic, gas prices have been steadily rebounding. Last month they rose 9.1%, the third-largest monthly increase since 2009, largely as a result of the surprise winter storms in Texas in February that shut down petroleum refining capacity. But the month also registered a big uptick in consumer demand for automotive fuel, according to AAA.Graphic: Filling the tank RENTALSThe Centers for Disease Control earlier in April said fully vaccinated people were at low risk for catching COVID-19 while traveling, but it’s clear that many people did not wait for that green light.Costs for a number of travel-related services rose substantially in March, with airline tickets, for instance, rising for the first time since November, up 0.4% from February.One of the largest price increases in the travel sector was for vehicle rentals. They climbed 11.7%, the second-largest monthly increase on record.Graphic: Wheels away from home ROOMSCosts for lodging away from home surged in March, led by the largest increase in hotel and motel room prices in decades. Prices for hotel and motel stays rose 4.4% from February, the most since January 1991.Graphic: Would you like a room with a view? ADMISSIONSIf last month’s price increases for event and venue admissions are any guide, people were eager not just to go places but also to do things that were largely not available for most of the last year.The 2.6% increase for admissions to everything from movies and sporting events to concerts and theme parks was the biggest since 1984.Graphic: How much to get in? price increases for food – both at home and away from home – were mostly subdued in March, but one item stands out: A 3.4% increase for potatoes, the largest increase in nearly eight years.The rise coincided with a rebound in restaurant traffic and came roughly a year after restaurant shutdowns contributed to a big drop in potato prices that weighed on the CPI’s sub-index for potatoes through February. In mid-March, restaurants that were open were seating guests at roughly 70% of their pre-pandemic levels, but that was up sharply from the previous month, according to OpenTable data. This month, many are routinely seeing guest levels around where they were before the pandemic struck.Graphic: Side of fries with that? More

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    Fed's Harker says central bank will 'hold steady' for now

    (Reuters) – The U.S. economy could grow by around 5% to 6% this year, buoyed by increased vaccinations and strong fiscal aid, but the Federal Reserve is not going to pull back its support yet, Philadelphia Federal Reserve Bank President Patrick Harker said on Tuesday. “For now, Fed policy is going to hold steady,” Harker said in remarks prepared for a virtual event organized by the Delaware State Chamber. “While the economic situation is improving, recovery is still in its early stages, and there’s no reason to withdraw support yet.”Policymakers agreed last month to leave interest rates near zero and keep purchasing $120 billion a month in bonds until the economy makes “substantial further progress” toward the Fed’s goals for inflation and maximum employment. A full economic rebound cannot happen until more people are vaccinated and the U.S. reaches herd immunity, he said. But the announcement Tuesday that federal health agencies recommended pausing use of Johnson & Johnson (NYSE:JNJ)’s COVID-19 vaccine after six women developed rare blood clots could make more people hesitant to receive the vaccines and slow down the recovery, Harker said.Despite concerns among some economists and politicians that inflation could shoot higher as the economy heals, Harker said he is concerned with the opposite – inflation that is too low. Over the longer term, the Fed wants inflation to run above its 2% target to make up for long periods of falling short of the goal, Harker said. “We’re not seeing inflation running out of control,” Harker said. “If it does, we’ll act accordingly.” More