Financial encyclopedia

Federal Reserve Chairman Powell often stressed that "the central bank is firmly committed to the goal of restoring the inflation rate to 2%".

Why is it a "2%" inflation rate?
When the inflation rate is higher than 2%, people's money will depreciate rapidly, which will affect people's living standards. However, if the inflation rate is too low, the possibility of falling into deflation will increase and the risk of economic recession will increase. Moderate inflation can encourage enterprises to invest, create a stable employment environment and promote sustained economic growth.

Members of the Federal Reserve have also said that 2% is the best way to meet their two requirements of "price stability" and "employment maximization", and these two requirements are in line with the orders given to them by Congress.

Before 2020, we have been pursuing the "symmetric inflation goal of 2%".
This means that when the market data shows that the inflation rate exceeds 2%, monetary policy will tend to tighten, and vice versa.

After 2020, it will be changed to Average Inflation Targeting.
It is to tolerate inflation exceeding 2% for a period of time until the average inflation rate reaches 2% during this period. The adjusted policy goal can keep the market environment in an ultra-loose environment for a long time.