BiggerPockets Money Podcast · Friday, October 2, 2026
Jay Scott provides context on the Fed's 2% inflation target, noting that historically, inflation has averaged around 3.1% to 3.2% over the last 120 years. He explains the 2% target was set after the 2008 recession to combat deflationary fears, and suggests a current target might be more accurately set at 2.5% to 3%.
“We always talk about this Fed target of 2%. We want 2% growth. Why is it 2% and not 2.5% or 3% or 5% or 1%? If you look over the last 120 years, inflation has run on average about 3.1%.”
“And so this Fed target of 2%, it's a perfectly reasonable target, but it's not necessarily the historical average, so it's not uncommon to see higher inflation. Now, the Fed set this 2% target back in 2000, I think, 13 or 14. And the reason they originally set that 2% target was because, as I mentioned earlier, when we came out of the 2008 recession, we had very, very little inflation in this country. And that scared the Fed.”
“Having too little inflation can be just as bad for the economy as having too much inflation. And so when that 2% target was set, inflation was closer to 1%, and the Fed was trying to get inflation up to 2%. I suspect that if they were to reset that target today, it would probably be 2.5% to 3%.”