Why central banks should forget about 2% inflation | Jeffrey Frankel

Economists remain fixated on the need for 2% inflation. It's time to move on

The Federal Reserve has some reasons to cut interest rates at its 31 July meeting, or subsequently if the US economy weakens. (There is also a case for holding rates steady, if growth remains as strong as it has been over the past year.) But one argument for easing is less persuasive: a perceived imperative to get US inflation up to or above 2%.

The Fed set the 2% inflation target in January 2012 under its then chair, Ben Bernanke, after some other central banks had already done so. Japan followed suit a year later, shortly after the prime minister, Shinzo Abe, returned to power on the promise that monetary policy would raise inflation (Japan had previously suffered from falling prices).

Related: Does setting inflation targets cloud our view of the economy? | Robert Shiller