How 2% became the target for inflation

The Indicator from Planet Money

NPR

Business

4.7 • 9.2K Ratings

🗓️ 23 December 2022

⏱️ 9 minutes

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Summary

Most people assume that when the Fed says a two percent inflation target is best for the economy, they're correct. But that number is more arbitrary than it seems, and some economists are pushing back.

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Transcript

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0:00.0	NPR.
0:07.0	I was thinking the other day about my favorite contemporary opera.
0:16.0	Wait, you have a favorite contemporary opera?
0:19.0	Yeah, and you will too, Whalen, after I play you a little bit of Philip Glasses' Einstein
0:24.5	on the beach.
0:25.5	One, two, three, four, one, two, three, four, five, six, one, two, three, four, five, six,
0:32.5	seven, eight, one.
0:33.5	It's nice, it's like a post-modern Sesame Street.
0:39.1	What I love about it is that after a few minutes the numbers don't mean anything anymore.
0:43.9	It's like an incantation.
0:46.0	I was thinking about this after listening to the Chair of the Federal Reserve, J. Powell,
0:50.7	speak last week.
0:51.7	Listen.
0:52.7	A percent inflation goal, we're going to keep our inflation target at 2%, we're going to
0:56.7	use our tools to get inflation back to 2%.
0:58.7	2 is definitely the favorite number of the fed these days.
1:02.7	They are going to do anything they can to bring inflation down to a modest 2%.
1:08.2	And Powell said 2% over and over again, like Philip Glass, 17 times I counted until I was
1:15.5	under its spell.
1:17.7	2%, 2%, 2%.
1:21.7	2%, 2%, 2%, 2%, 2%, 2%, 2%.
1:28.7	Wow, now I have a new favorite opera.
	...

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