Two percent inflation is more than just the Federal Reserve’s goal, one could argue, as it works to wrestle down pandemic-related price increases that have plagued U.S. households over the past three years.
It’s the Fed’s holy grail. Its lodestar. Its mantra.
Lately, though, the 2% target feels more like the economy’s Godot – a remedy to its inflation woes that seemed tantalizingly close not long ago but now appears further away, raising questions about whether it will arrive at all.
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The dilemma may have significant implications for consumers, investors and the U.S. economy. Fed officials have said they won’t start cutting interest rates – which would lower borrowing costs for millions of Americans, boost economic growth and further juice a bullish stock market – until inflation “is moving sustainably toward” the 2% target.
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But with the economy showing early signs of faltering, some top forecasters are increasingly asking some version of this question:
What’s so magical about 2%?
And does the Fed really need to wait until inflation approaches the seemingly sacrosanct objective to start trimming its key interest rate, which has hovered at a 23-year high since last summer?
“I don’t think 2% is the right number,” says Mark Zandi, chief economist of Moody’s Analytics. “Don’t sacrifice the economy on the…
