A on Nostr: The 2% inflation target, was never an official mandate it just became widely accepted ...
The 2% inflation target, was never an official mandate it just became widely accepted by repetition over time.
Check out the FOMC meeting minutes from July 1996, when Alan Greenspan was fed chair and Janet Yellen was on the Board of Governors.
https://www.federalreserve.gov/monetarypolicy/files/fomc19960703meeting.pdf
Yellen is married to economist George Akerlof, she drew upon his research which suggested that if there was 0% inflation, when companies needed to reduce wages during economic downturns it could harm worker morale and productivity. But, with a modest inflation rate like 2%, employers could implement real wage reductions by increasing wages by 1%. workers perceived a nominal wage increase as good, even though their real purchasing power was decreasing, this would maintain morale and avoid the negative effects associated with wage cuts.
During the meeting, Greenspan wanted to have a clear definition of inflation and yelled, influenced by her husbands research suggested that a 2% target could enhance employment outcomes. She argued that a modest inflation rate would enable companies to adjust real wages without the need for nominal wage cuts,
Greenspan expressed concerns, He worried that when the FOMC’s discussions were made public, Congress might view the adoption of a 2% inflation target as conflicting with the Federal Reserve’s mandate to ensure price stability. Despite his concerns, the 2% target gradually became a standard benchmark for central banks aiming to balance price stability with economic growth.
Check out the FOMC meeting minutes from July 1996, when Alan Greenspan was fed chair and Janet Yellen was on the Board of Governors.
https://www.federalreserve.gov/monetarypolicy/files/fomc19960703meeting.pdf
Yellen is married to economist George Akerlof, she drew upon his research which suggested that if there was 0% inflation, when companies needed to reduce wages during economic downturns it could harm worker morale and productivity. But, with a modest inflation rate like 2%, employers could implement real wage reductions by increasing wages by 1%. workers perceived a nominal wage increase as good, even though their real purchasing power was decreasing, this would maintain morale and avoid the negative effects associated with wage cuts.
During the meeting, Greenspan wanted to have a clear definition of inflation and yelled, influenced by her husbands research suggested that a 2% target could enhance employment outcomes. She argued that a modest inflation rate would enable companies to adjust real wages without the need for nominal wage cuts,
Greenspan expressed concerns, He worried that when the FOMC’s discussions were made public, Congress might view the adoption of a 2% inflation target as conflicting with the Federal Reserve’s mandate to ensure price stability. Despite his concerns, the 2% target gradually became a standard benchmark for central banks aiming to balance price stability with economic growth.