 This is Minor Issues number eight. I'm Mark Thornton at the Mises Institute and today I want to talk about the Federal Reserve's 2% inflation target. You'd be absolutely justified to ask the question why does the Fed have a 2% of target rate of inflation? And why isn't their target zero? This is something that's talked about on Bloomberg Radio, on CNBC television in the Wall Street Journal and virtually every issue, but it's not ever explained why we need 2% inflation. Given that inflation is obviously a bad thing, why don't we have a target of zero inflation? Is this just some kind of bad medicine? Well, if you turn to the Fed, they'll tell you that the inflation target helps them achieve their mandates, but they never explain exactly how the inflation target helps with their mandates. The real story is that in 1990, New Zealand established the first inflation target of 1 to 3% consumer price inflation. They did this because of all the inflation they experienced in the 1980s and they wanted to establish some credibility for their currency and they wanted to gain some confidence in their monetary policy. But it's important to note that this was a maximum promise that inflation would never get above 3% in a given year. There was nothing about a minimum barrier to low inflation and indeed, the Fed used their inflation target of 2% prior to 2020 to complain about the low rate of inflation in the US and how the Fed needed to expand the money supply and keep interest rates down in order to bump up the inflation rate in the United States. So it was providing them with a justification for more inflation. Now, the original purpose worked for New Zealand. The ideas spread through European countries, South American countries, Asia and African countries. In its original form, it was very successful. The European Central Bank and the Fed never explicitly adopted inflation targeting because they have a dual mandate. But by adopting the 2% inflation target, they've given themselves another justification, another excuse to manipulate the money supply and interest rates in the economy. They did it prior to COVID when they were justifying their ultra low interest rates and now that inflation has reached historic levels in the United States and elsewhere, they're using it to justify their increases in interest rates and the pain that that's creating throughout the economy. So it's a justification for manipulation. It's an excuse. It's really a spokescreen. It's not what you would consider a monetary policy in any scientific sense. And of course, in the long run, it justifies more inflation, even if they were able to target inflation correctly and precisely.