I always thought that the 2% #inflation target was a number that was based on some research or extensive analysis, and now I read this article claiming that it was produced out of thin air...
https://time.com/6548908/inflation-target-federal-reserve-essay
@etiennew Yeah it's kind of a compromise, and in a way it doesn't even matter exactly where the compromise number was set.
It's not like the Fed has a knob that they can use to actually set the inflation rate.
So it's a ballpark guideline, it didn't need to be precise, it just had to be reasonable, so they chose 2%.
@etiennew Well I would generally frame it as political science.
Monetary policy at the Fed amounts to supervisors doing their best to please the public, negotiating between stakeholders that are both formal and informal, pretty much the same way that any congressperson also has to weigh the interests of different parties through the legislative process.
And it's like, a congressperson might consult the science of how a nuclear power plant would impact their district, but at the end of the day, subjective valuations are really what matter.
The Federal reserve has on staff a ton of economic experts that can speak more or less scientifically, but at the end of the day, they have to please the public that isn't necessarily so objective in their demands
@volkris I agree it is reasonable. I'm just shocked that it became the benchmark only because it seemed "reasonable", without any advanced research.
It would confirm the thesis that monetary policy is more art than science...