Controlling overall inflation is a goal of monetary policy. Measures of overall, or headline, inflation attempt to include changes in the prices paid for a wide variety of goods—that is, what households actually have to pay for their daily purchases. This is a sensible notion of precisely what the central bank can and should control over the medium term.

Many discussions of monetary policy, even within the central banking community, discuss movements of subsets of prices instead of the overall or headline measure of price changes. The most famous subset is the “core”—all prices except those relating to food or energy. Core inflation is the measured rate of increase of these prices. Control of core inflation is not the goal of monetary policy, although it sometimes seems to be given the amount of emphasis put on this concept in the U.S.

In my remarks tonight I will argue that many of the old arguments in favor of a focus on core inflation have become rotten over the years. It is time to drop the emphasis on core inflation as a meaningful way to interpret the inflation process in the U.S.

One immediate benefit of dropping the emphasis on core inflation would be to reconnect the Fed with households and businesses who know price changes when they see them. With trips to the gas station and the grocery store being some of the most frequent shopping experiences for many Americans, it is hardly helpful for Fed credibility to appear to exclude all those prices from consideration in the formation of monetary policy.

There are several key arguments that are commonly used to favor a focus on core inflation in monetary policy discussions. I will argue that all of them are essentially misguided. Because of this, the best the central bank can do is to focus on headline measures of inflation. The headline measures were designed to be the best measures of inflation available—the Fed should respect that construction and accept the policy problem it poses. Many other central banks have solidified their position on this question by adopting explicit, numerical inflation targets for headline inflation, thus keeping faith with their citizens that they will work to keep headline inflation low and stable. The Fed should do the same.

Let me stress before I continue that my remarks tonight are my own views and do not necessarily reflect those of others in the Federal Reserve System or on the Federal Open Market Committee.

Let me turn now to four broad arguments that are often invoked to rationalize a focus on core inflation and why I think they are all misguided.