Owner of Retirement Planning Firm, Capital Squared Financial - Husband+Dad 👨👩👦👦
Where did the Fed's 2% inflation target come from? I have little doubt you pondered this question assuming you've been concerned about inflation over the past few years. As a brief reminder, inflation (CPI) was at 9.2% in June 2022, one of the highest rates since the late 1970s. We are at 3.2% as of today. The 2% inflation target has been in place since 1996 but it became an explicit target in 2012 under Ben Bernanke. Many international banks have the same target, including the European Cental Bank, the Bank of Japan and the Bank of England. This is a comfortable benchmark for many developed economies that rarely experience growth rates above 2% to 3% or even lower. At least on the surface, inflation of 2% preserves the purchasing power of workers in these economies. In practice, there are numerous factors that make it challenging to justify any static inflation target. In fact, even the current Fed chairman Jerome Powel had a hard time justifying it when he was asked this specific question in one of his semi-annual testimonies. I personally believe it should fluctuate between a certain range, such as 2% to 4%, depending on the state of the economy. Let me know if you have any other ideas. #inflation #interestrates #federalreserve #wealthmanagement #capitalsquaredfinancial
Editorial Consultant at Contract / Consultant basis
1y2% was actually adopted from the New Zealand central bank.