The Fed, along with most global central banks, considers 2% (or in that neighborhood) to be the definition of "price stability" that it aims for. Except that in the Fed's case, that 2% is on PCE (not CPI), and they only aim to hit that as an average over some (unstated) period of time.

However, even that is proving to be...somewhat difficult, leading to "murmurs" in some quarters that the Fed should change its target to 3% rather than 2%. For example, see this article in Reuters from May 24th: https://www.reuters.com/markets/us/murmurs-grow-within-fed-about-tweaking-2-target-once-inflation-recedes-2023-05-24/

In this episode, the Inflation Guy reviews the history of the 2% target, including how it's sort of a squishy target...which the Fed doesn't really have the power to hit anyway. The Inflation Guy goes a little nuts with the analogies but you will get the point.

Tune in for the trivia question; stay for the history lesson!

Please like, subscribe, and refer!

Ep. 67: Three-point Goal? Or go for Two? (Percent)