Eli5: The idea of inflation is headline news this week in the US. What is magic about a 2% inflation target as opposed to 3%?

Question

Is there some sort of mathematical reason behind this goal? Does 3% have some sort of long-term effects such that it becomes uncontrollable or something?

It seems like, inflation or not, places are just as busy (restaurants, Target/Wal-Mart, Costco, etc…).

In: Economics

Answer 1

2% PCE (not CPI) and it’s fairly new and arbitrary. It’s what the FED feels is a comfortable balance between price stability and full employment. Lower risks a recession and higher brings the high inflation no fun.