The Genesis of the 2% Inflation Rate Target

Neil Irwin details the origins of the two percent inflation rate target that was hastily formulated decades ago in New Zealand and then uniformly adopted  by the world’s central banks – for better or worse – in this story at the Washington Post that turns out to be a pretty interesting romp through recent monetary policy history.

Of course, an interesting historical tidbit that is often overlooked is the fact that there was basically zero percent inflation in the U.S. in the 100 years prior to the birth of the Federal Reserve in 1913, back when the nation was always on a hard money standard of some sort.

During that period, inflation would come and go as governments printed money to fight wars, but, overall, the price level of all sorts of goods and services (and hence, the purchasing power of money) was virtually unchanged for a century (and likely much longer, though we’ll never really know because data is not available), all of which stands in stark contrast to what we’ve seen in the last 100 years.