The Federal Reserve has targeted 2% inflation since 2012. Core PCE currently sits at 3.0%, and yesterday's wholesale inflation report — PPI up 0.5% against an expected 0.3%, core at a 10-month high of 3.6% — just made the "last mile" look longer. So the question isn't just whether 2% is achievable. It's whether 2% is the right number in the first place.

1. Two Means Two (Jerome Powell, Frederic Mishkin)

The target means credibility. Change it and you lose both.

"Credibility is everything in the world of central banking." — Jerome Powell He called the 2% target non-negotiable, adding that any discussion of raising it should only happen after inflation returns to 2% — otherwise the market won't believe the Fed's commitment next time inflation comes roaring back.

Blowing past 3% means runaway inflation. Former Fed governor Mishkin and Columbia economist argues that once inflation exceeds 3%, "it tends to keep on rising." His exhibit A: the 1960s, when the Fed tolerated 4% inflation and watched it spiral into the stagflation of the 1970s. NBER research from 2025 backs the framework — countries with inflation targeting regimes achieved lower long-run inflation and smaller responses to shocks from oil and exchange-rate.

The logic is simple: a target you're willing to move isn't a target. It's a suggestion. And markets price suggestions differently than commitments.

2. Raise It to 3% or 4% (Olivier Blanchard, Laurence Ball, Paul Krugman)

The 2% target is too low, and it's costing us recessions we didn't need to have.

3% would give us more room to cut when we need it. Olivier Blanchard, the former IMF chief economist, put it bluntly: "Absent historical context, it would make sense to have 3% as the target inflation... I don't think any economist can argue against this." His core argument is the zero lower bound — when rates hit zero in a recession, the central bank is stuck. A higher inflation target means higher nominal rates in good times, which means more room to cut when things go bad.

There's no evidence that 3% of 4% inflation does more damage than 2%. —Laurence Ball at Johns Hopkins, in an IMF paper. And the zero bound hit hard in 2008 — estimates suggest the Fed would have needed to cut rates another 3-5 percentage points beyond what they did, and just couldn't.

Krugman frames it as a trap. If the economy needs 4% inflation to function but the central bank only targets 2%, "this may actually guarantee failure" at the zero lower bound. In a world of permanently low natural interest rates, 2% isn't cautious — it's reckless.

3. Scrap the Target Entirely (Scott Sumner, Stephanie Kelton)

The problem isn't the number. It's the whole framework.

Replace inflation targeting with nominal GDP targeting. Economist Scott Sumner says the % inflation is not a good measure of macroeconomic stability — but nominal GDP is. Under his model, the Fed would target 5% NGDP growth — roughly 3% real growth plus 2% inflation — using futures markets as a guide.

Inflation targeting misdiagnoses the disease. Economist Stephanie Kelton: "There is no one, simple MMT approach to inflation. Each inflationary episode has different causes, and until you understand the particular causes of each episode, you can't recommend solutions." Her alternative: a federal Job Guarantee that acts as an automatic stabilizer, absorbing workers in downturns and releasing them in booms.

A single number can't capture an entire economy's health. Fixed targets treat supply-shock inflation the same as demand-driven inflation, and that mismatch leads to policy mistakes.

Where This Lands

Powell says 2% is non-negotiable. Blanchard and Ball say it's economically irrational. Sumner says we're measuring the wrong thing entirely. Meanwhile, core PCE sits at 3% and today's wholesale numbers suggest it's not coming down anytime soon. The practical question isn't theoretical anymore — if 2% stays out of reach, the Fed will eventually have to choose between defending a number it can't hit and admitting the number was wrong. That's a conversation nobody in Washington wants to have yet.

Sources