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Bloomberg's Managing Editor for US economic policy Kate Davidson and Bloomberg Opinion columnist Mohamed El-Erian discuss the Federal Reserve's inflation target of 2%, the risks of being wrong about it, and who could be most impacted. They explore the challenges in reaching the target, credibility issues during the pandemic, transitory inflation risks, global economic shifts towards protectionism, and strategies to control inflation and restore price stability.
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Quick takeaways
- The Fed's 2% inflation target was set to boost economic growth post-global financial crisis.
- Critics question the validity of the 2% inflation target due to changing economic dynamics.
Deep dives
Evolution of the 2% Inflation Target
Policymakers settled on a 2% inflation target in the wake of the global financial crisis, aiming to stimulate economic growth. This target emerged from New Zealand's successful adoption of a similar approach in 1990. The Fed later adopted this target in 2012, under Chairman Ben Bernanke's leadership, to enhance transparency and public understanding. The target aimed to anchor inflation expectations and promote price stability and moderate interest rates.
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