Federal Reserve: The Origins of the 2 Percent Inflation Target

Eight times a year, the Federal Open Market Committee (FOMC) meets to conduct monetary policy, and, regardless of what actions it takes, this seemingly straightforward line has appeared in each of its post-meeting statements since September 2020. By now, many Fed watchers may take it for granted. But the committee — the Federal Reserve Board's seven governors, the president of the New York Fed, and a rotating set of four presidents from the other Reserve Banks — has not always been so transparent and precise on this subject. For decades, it did not aim for a target inflation number; even when it appeared to settle behind the scenes on a 2 percent target in 1996, it wasn't made public and explicit until 2012 – 16 years later. The 2012 pronouncement was the result of a decades-long deliberation, as members first raised the issue in the mid-1990s. Policy change moved slowly, however, as committee turnover brought new preferences and ideas into a dynamic economic and political environment. Along the way, the Richmond Fed's leadership played an important role in bringing these changes about, from being among the first to raise the idea of a target to providing the intellectual leadership that shaped discourse about the benefits of a public inflation target for price stability.