Ex-Fed Chair Paul Volcker says US should abandon 2% inflation target

Former US Federal Reserve Chairman Paul Volcker has said that he does not understand the rationale behind the central bank having a target of 2 percent for inflation.

Volcker said that he had found no mention of the rationale behind having a 2 percent target for inflation in any of the textbooks that he had read. "I know of no theoretical justification," he wrote.

The comment was made in a book written by Volcker -- Keeping at It: The Quest for Sound Money and Good Government -- which is scheduled to be published on October 30.

The former central banker pointed out to New York Times columnist Andrew Ross Sorkin that the Fed's policy was likely being driven by fears of deflation.

"And we haven't had any deflation in this country for 90 years!" he was quoted in a column as saying.

Speaking about US' financial situation and fears of another crisis hitting the economy, Volcker agreed that banks are now in a better position than they were in a decade ago, but said "the honest answer is I don't know how much they’re manipulating."

The veteran economist added that this was the real challenge for economic policymakers right now and that "stronger supervisory powers" were the need of the hour.