The origins of the Fed’s 2% inflation target
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Federal Reserve Chair Jay Powell has made it very clear that he’s laser-focused on bringing inflation back down to the central bank’s target rate of 2% annually.
But why is reaching that specific number such a big deal? And where did the 2% target come from?
“It’s important because economies work better when there’s less uncertainty. … If people aren’t clear about what policymakers are trying to do, that leads to all kinds of uncertainties,” said David Wilcox, economist at the Peterson Institute for International Economics and director of U.S. economic research at Bloomberg Economics.
On the show today, Wilcox explains why it’s important for central banks to have a target inflation rate in the first place, how the Fed landed on 2% in particular and whether that target rate should be lifted in today’s economy. Plus, some monetary policy pro tips!
In the news, the Supreme Court considered a legal theory that had gained traction with Republicans and kicked it to the curb. We’ll get into what that might mean for future elections. And, an EV company went the SPAC route, and it didn’t turn out well.
Then, listeners sound off on “Star Wars” and a Rubik’s Cube TV series. Plus, a self-described rum nerd makes us smarter about the misunderstood spirit.
Here’s everything we talked about today:
- “Fed’s Powell, in testimony, says inflation fight has ‘long way to go”‘ from Reuters
- “Should the Fed raise its 2% inflation target?” from Marketplace
- “Alternatives to the Fed’s 2 percent inflation target” from the Brookings Institution
- “Of Kiwis and Currencies: How a 2% Inflation Target Became Global Economic Gospel” from The New York Times
- “Limitless: The Federal Reserve Takes on a New Age of Crisis” by Jeanna Smialek
- Supreme Court rejects “independent state legislature” theory from Politico
- “The Incredible Story of the Lifeguard Who Won the Biggest Surf Competition in the World” from GQ
- “As Lordstown immolates, SPAC deals that didn’t go to zero feel like the exception” from TechCrunch
- “As Lordstown Motors Dies, Lordstown’s EV Business Survives” from The Wall Street Journal
- “‘The Speed Cubers’ takes on the world of competitive Rubik’s Cube solving” from Mashable
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