Federal Reserve’s 2 Percent Inflation Target Is ‘Worth Keeping,’ Economists Say.

 

Economists believe the Federal Reserve’s 2 percent inflation target is “worth keeping” and shifting the goalposts would send the wrong signal to consumers.

Since 2012, the U.S. central bank has officially maintained a 2 percent inflation target, though monetary policymakers had settled on this figure behind the scenes in the 1990s.

With inflation proving to be sticky and progress on restoring price stability slowing, there has been talk in the public arena that the Fed should reconsider this objective.

Consistency in Fed guidance is a crucial element for financial and economic stability, so considering this change does not come lightly,” said Joe Brusuelas, the chief economist at RSM, in an October 2023 paper. “We suggest an incremental approach as the Fed quietly raises the tolerance level for inflation to a 2.5 percent to 3 percent range while keeping its policy rate at 5.5 percent.”

In 2018, David Wessel of the Brookings Institution argued that the Fed should lift the inflation target while also shooting for 2 percent.

“One alternative to the Fed’s current approach would be to keep targeting the inflation rate, but to raise the target from the current 2 percent, perhaps to 3 percent or 4 percent,” Mr. Wessel wrote.