Fed Pledges to Restore 2% Inflation Target Amid Years of Exceedance

The Federal Reserve's inflation target of 2% has been in place since 2012. Fed Chair Kevin Warsh recently testified before Congress, vowing to restore annual inflation to this level.

Since 2012, the PCE index has consistently shown inflation above 2%, with no signs of slowing down.

The concept of an inflation target was first introduced in New Zealand in 1990. The country set a target band of 0.5-2% for its central bank to keep inflation within.

New Zealand's experience influenced other countries, and by 1996, several nations had adopted similar targets around the 2% mark.

Economists concluded that any higher target would erode purchasing power too quickly, while a lower target risked triggering deflation.