More and more economists call for raising the inflation target by 2%

If there is one word that will make headlines in 2022, it is inflation. Inflation is currently soaring almost everywhere in the world, forcing central banks to struggle vigorously with significant rate hikes. Now, however, more and more economists believe the Federal Reserve should raise its inflation target by 2%.

Where does this 2% come from?

All the central banks in the world are trying to keep inflation at around 2%. We do not know where this figure comes from. Anyway, it’s not science-based, but mostly seems like wet-finger work. This number first appeared in New Zealand, where the central bank faced high inflation in the 1980s.

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“New Zealand has learned the hard way that high inflation does not necessarily lead to high economic growth. That is why bankers wanted a low and stable rate of inflation. In that sense, 2% does not seem too low, because too low would not be desirable either.It would make interest rates too low, leaving central bankers little room to cut interest rates in the event of a crisis. So Samanth Subramanian for Quartz.

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Now, publications such as The Economist are already talking about a possible increase in the inflation target. An argument that we have seen more and more often in recent weeks, which central bankers no doubt want to use to appease popular panic over inflation. If 4% becomes the “new normal”, things will be “in order” much sooner.

Jeroen Blokland expects policy change

Dutch macro analyst Jeroen Blokland, who started his own business just recently, expects central banks to quickly abandon their strict 2% inflation target.

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As of this writing, 68.8% of voters in his poll agree with Blokland. Most people therefore also expect the Federal Reserve and other major central banks to adjust their inflation target in the near term.

Personally, I haven’t seen it yet, as Fed Chairman Jerome Powell repeatedly reiterated the 2% inflation target for the United States during his speech this week. A change of course in this area would do little good for the reputation of central bankers, which is not very good at the moment.