The Fed is targeting 2% inflation. Should we aim higher?

The transcript shows that he said “zero” was the right target if “inflation was correctly measured”. But measuring inflation accurately is difficult, as everyone in the room acknowledged. So Ms Yellen said: “Mismeasured, I think heading for 2% inflation would be a good idea, and we should do it slowly, watching what happens along the way.

It was basically that.

Other Fed members agreed, and the 2% target was written into Fed policy, but only covertly. Mr. Greenspan did not want his hands tied. “I’m going to tell you that if the 2% inflation figure comes out of this room, it’s going to create more problems for us than I don’t think any of you could anticipate,” he said, according to the transcript.

At that time, Mr. Greenspan and the Fed favored a style of communication that even he called opaque. In testimony before Congress in 1987, he was funny but fair. “Since becoming a central banker, I’ve learned to mumble with great incoherence,” he said. “If I sound too clear to you, you must have misunderstood what I said.”

It wasn’t until 2000 that the Fed began issuing regular “forward guidance” after its meetings, projecting where it expected the economy and inflation to be heading. By now, Mr. Powell’s press conferences have become routine. But it’s worth remembering that it wasn’t until 2011, long after Ben S. Bernanke took over as Fed chair, that the central bank broke with Volcker and Greenspan’s tradition of extreme circumspection and held its first regular press conference.

In 2012, it finally openly and formally adopted the 2% target and made it part of the Fed’s forward guidance practice. Either way, in the long term, the Fed would turn to its North Star, the 2% inflation target.