This is CBS. I am the world. I'm John Bachelor. Inflation, the bane of the American economy

since the pandemic lifted. And yet, I welcome Joseph Sternberg, a member of the editorial

board of the Wall Street Journal. He's in London. He writes the political economics column.

And an anticipation of the Jackson Hole presentation by Jerome Powell, the chairman of the Federal

Reserve. Joe takes us through how it is that people are thinking about the inflation

target of 2%. What can go wrong and why? Joe, a very good even to you. Thank you for this.

The 2% has been argued about for quite some decades. And it was a comfortable target when

inflation was under 2%. Why? What is attractive about 2? Is it arbitrary? Or does it have some

evidence of being a successful economy? Good evening, too.

It is basically arbitrary. And I think that's the background for a lot of these inflation

discussions. It's so ubiquitous now that you tend to forget that inflation targeting is

actually pretty new. Central banks only started doing this in the 1990s. And it was because they

realized that they had to have something to aim for. And there was some economic theory about

the relationship between consumer price inflation and economic performance. But it was also

thought that inflation was relatively easy to measure. So it would be something that would

be relatively straightforward for them to aim at. And then as for this 2% number that they all

pick out, I mean, certainly the criticism of that from a consumer's perspective is that

ties that you're getting a 2% pay cut each year because prices are going up unless you can kind

of eke out enough of a wage increase to keep up with that. I mean, economists settled on 2%

because they thought that it was low enough that you wouldn't notice it so much if you were

household or business. But high enough that it would be that you would be safe from accidentally

tipping into deflation, you know, if the inflation rate fell below zero if it was negative.

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