Finshots Daily Mr. Powell says the good times are coming!
Aug 28, 2025
The discussion centers around the Federal Reserve's latest approach to inflation, highlighting a strict commitment to a 2% target. It examines the potential impacts on financial markets and U.S. debt, while also considering how emerging economies, like India, might adapt. The insights suggest forthcoming shifts in investment strategies that could reshape the economic landscape.
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Why The 2% Target Matters
- The 2% inflation target is largely arbitrary but became central to central banking practice worldwide.
- That small number now drives global capital flows and policy choices with outsized effects.
New Zealand's Quiet Policy Example
- New Zealand picked 2% in the early 1990s to tame runaway inflation and that example spread globally.
- The Fed formally adopted it by 2012 and other central banks followed suit.
When Averaging Went Wrong
- The Fed's Flexible Average Inflation Targeting (FAIT) allowed inflation overshoots to compensate prior undershoots.
- In practice FAIT coincided with a larger-than-expected inflation rise, reaching about 8% post-Covid.