Economist Peter Schiff criticized the Federal Reserve’s 2% inflation target as a pretext for accommodative monetary policy, amid Fed Chair Jerome Powell‘s recent congressional testimony highlighting persistent inflation concerns.
What Happened: In a post on X on Sunday, Schiff argued that the Fed’s 2% target, introduced in 2012, served as justification for quantitative easing and zero interest rate policies. “For the first 99 years of the Fed’s existence, the unofficial target was zero, as the mandate was price stability,” Schiff wrote.
Former central banker Neil Grossman added historical context, noting that the 2% inflation concept originated with the Reserve Bank of New Zealand in 1995 before other central banks adopted it. Grossman suggested the Fed used this target to “ignore one leg of their statutory mandate.”
Why It Matters: The criticism comes as Powell told Congress that inflation, currently at 3%, remains above the Fed’s target. “Today’s inflation print shows we’re close but not there yet,” Powell said during his House Financial Services Committee testimony. Core inflation, excluding food and energy, increased more than expected to 3.3%.
Recent Fed minutes revealed officials see “a high degree of uncertainty” requiring a careful approach to rate decisions. Market participants are closely monitoring these developments, with major retailers like Walmart Inc. WMT expressing caution about economic uncertainties and persistent inflation pressures.
Powell emphasized the Fed’s commitment to its restrictive stance, declining to specify an inflation threshold for rate cuts. He also raised concerns about the U.S. fiscal outlook, describing the current debt path as “unsustainable” given large deficits and low unemployment.
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